MONTEREY
MUTUAL FUND
PROSPECTUS
MARCH 31, 1997
PROSPECTUS
MONTEREY
MUTUAL FUND
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This Prospectus provides you with the basic information you should know before
investing in any Fund. You should read it and keep it for future reference. A
Statement of Additional Information dated March 31, 1997 containing additional
information about the Trust and the Funds has been filed with the Securities and
Exchange Commission and is incorporated by reference into this Prospectus in its
entirety. You may obtain a copy of the Statement of Additional Information
without charge by calling the Trust's Distributor at (800) 251-1970 or by
writing to the Distributor at 1299 Ocean Avenue, Suite 210, Santa Monica, CA
90401.
Monterey Mutual Fund (the "Trust") is an open-end investment company having
eight separate portfolios (the "Funds"), each of which is a separate mutual fund
having its own objective or objectives, assets, liabilities and net asset value
per share. The eight Funds are: (1) the Monterey PIA Short-Term Government
Securities Fund (the "SHORT-TERM GOVERNMENT FUND") whose objective is to provide
investors a high level of current income, consistent with low volatility of
principal through investing in short term, adjustable rate and floating rate
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; (2) the Monterey Camborne Government Income Fund (the
GOVERNMENT INCOME FUND" OR "GOVERNMENT FUND"), whose objectives are growth of
capital, whether over the short or long-term, income and "preservation of
capital; (3) the Monterey OCM Gold Fund (the "GOLD FUND"), whose objective is
long-term growth of capital through investing primarily in equity securities of
domestic and foreign companies engaged in activities related to gold and
precious metals; (4) the Monterey PIA Equity Fund (the "EQUITY FUND"), whose
objective is long-term growth of capital; (5) the Monterey Murphy New World
Biotechnology Fund (the "BIOTECHNOLOGY FUND"), whose objective is long-term
growth of capital through investing primarily in equity securities of companies
that its investment adviser believes can produce products or services that
provide or benefit from advances in biotechnology; (6) the Monterey Murphy New
World Technology Fund (the "TECHNOLOGY FUND"), whose objective is long-term
growth of capital through investing primarily in equity securities of companies
that its investment adviser believes can produce products or services that
provide or benefit from advances in technology; (7) the Monterey Murphy New
World Technology Convertibles Fund (the "CONVERTIBLES FUND"), whose objective is
to maximize total return through a combination of capital appreciation and
income; and (8) the Monterey PIAGlobal Bond Fund (the "GLOBAL BOND FUND"), whose
objective is to provide a high level of current income through investing in
bonds denominated in U.S. dollars and other currencies. There is no assurance
that any Fund will attain its objective or objectives.
The Convertibles Fund may invest without limitation in lower quality, high risk,
high yielding debt securities, commonly referred to as "junk bonds." Junk bonds
are more risky than higher rated debt securities. Junk bonds have a greater risk
of default, greater sensitivity to general economic conditions and changes in
interest rates, as well as a thin secondary market, making them subject to
greater price volatility. See "Murphy New World Technology Convertibles Fund" on
page 18 for further information.
Not all portfolios of the Trust may be available in your state.
The date of this Prospectus is March 31, 1997.
FEE TABLE
<TABLE>
FEE TABLE
<CAPTION>
SHORT-TERM GLOBAL
GOVERNMENT GOVERNMENT GOLD EQUITY BIOTECHNOLOGY TECHNOLOGY CONVERTIBLES BOND
FUND FUND FUND FUND FUND FUND FUND FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) None 4.50% 4.50% 4.50% None None None None
Maximum Sales Load Imposed
on Reinvested Dividends None None None None None None None None
Deferred Sales Load None None None None None None None None
Redemption Fees None None None None None None None None
Exchange Fee None None None None None None None None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees 0.20% 0.40% 1.00% 1.00% 1.00% 1.00% 0.63% 0.40%
12b-1 Fees 0.05% 0.10% 0.99% 0.99% 0.25% 0.25% 0.25% None
Other Expenses (after expense reimbursement) 0.05% 0.60% 0.45% 0.45% 1.19% 1.19% 1.56% 0.11%
------ ------ ------ ------ ------ ------ ------ -----
Total Fund Operating Expenses
(after expense reimbursement) 0.30% 1.10% 2.44% 2.44% 2.44% 2.44% 2.44% 0.51%
</TABLE>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
Short-Term Government Fund $ 3 $ 10 $ 17 $ 38
Equity Fund or Gold Fund $69 $118 $169 $310
Convertibles Fund, Technology Fund
or Biotechnology Fund $25 $ 76 $130 $278
Government Fund $56 $ 78 $103 $173
Global Bond Fund $ 5 $ 16 $ 29 $ 64
The purpose of the table above is to assist the investor in understanding the
various costs and expenses that an investor in any of the Funds will bear
directly or indirectly. For a more complete description of the various costs and
expenses, see "Management" and "How to Purchase Shares." The Annual Fund
Operating Expenses for each of the Funds (other than the Global Bond Fund) have
been restated to reflect their current fees and expense reimbursement
commitments. The Annual Fund Operating Expenses for the Global Bond Fund are
estimated. If each Fund (other than the Global Bond Fund) had not been
reimbursed for excess operating expenses, the Total Fund Operating Expenses
during the last fiscal year of the Convertibles Fund, the Government Fund, the
Gold Fund, the Equity Fund, the Technology Fund, the Biotechnology Fund and the
Short-Term Government Fund would have been 5.11%, 5.68%, 6.15%, 11.73%, 10.44%,
15.28% and 1.19%, respectively, and Other Expenses during the last fiscal year
of the Convertibles Fund, the Government Fund, the Gold Fund, the Equity Fund,
the Technology Fund, the Biotechnology Fund and the Short-Term Government Fund
would have been 3.66%, 5.20%, 4.23%, 9.42%, 8.55%, 13.28% and 0.80%,
respectively. Absent reimbursement, the Total Fund Operating Expenses for the
fiscal year ending November 30, 1997 of the Global Bond Fund are estimated to be
1.25%. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. Long-term
investors (other than investors in the Global Bond Fund) may pay more than the
economic equivalent of the maximum front-end sales charges permitted by the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
SUMMARY
What are the Funds? SHORT-TERM GOVERNMENT FUND -- The Short-Term Government Fund
seeks to provide investors with a high level of current income, consistent with
low volatility of principal through investing in short term, adjustable rate and
floating rate U.S. Government securities. Under normal circumstances at least
65% of the Short-Term Government Fund's total assets will consist of short-term
U.S. government securities and adjustable rate and floating rate U.S. government
securities having a duration of less than three years. The Short-Term Government
Fund will maintain a maximum duration of three years and a target duration in a
range of six-months to two-years. The Short-Term Government Fund will maintain a
dollar-weighted maturity of not more than three years determined in accordance
with Securities and Exchange Commission guidelines. See "Investment Objectives
and Policies of the Monterey Mutual Funds."
GOVERNMENT INCOME FUND -- The Government Income Fund invests at least 65% of
its total assets in securities of any maturity which are issued or guaranteed by
the U.S. Government or by any of its agencies or instrumentalities, including
U.S. Government-sponsored corporations ("U.S. Government securities"). The
average portfolio maturity of the Government Income Fund will depend on the
analysis of Pacific Income Advisers, Inc. ("PIA"), the Government Income Fund's
investment adviser, as to the shape of the yield curve and the relationship
between expected and actual yield curves of government and non-government
securities. See "Investment Objectives and Policies of the Monterey Mutual
Funds."
GOLD FUND -- The Gold Fund seeks to achieve long-term growth of capital by
investing primarily in equity securities of domestic and foreign companies
engaged in exploration, refinement, development, manufacture, production or
marketing of gold and other precious metals products. Under normal
circumstances, the Gold Fund's assets will be invested primarily in equity
securities of such companies whose activities are related to gold. Securities of
these companies have been subject to substantial price fluctuations and are
affected by various economic factors that normally do not affect other
investments, which in turn may subject the value of the Gold Fund's shares to
greater fluctuation. See "Investment Objectives and Policies of the Monterey
Mutual Funds."
EQUITY FUND -- The Equity Fund seeks to achieve long-term growth of capital
principally by investing in common stocks of issuers that PIA, the Equity Fund's
investment adviser, anticipates will have both sales and earnings which grow at
a higher than average rate per year. Typically the companies in which the Equity
Fund invests will be well-financed issuers with proven records of profitability,
although such companies may not be the largest and best known companies in their
industry groups. Investing for capital growth involves possible risks as well as
possible rewards. Since the major portion of the Equity Fund's portfolio will
normally consist of common stocks, its net asset value may be subject to greater
fluctuations than a portfolio containing a substantial amount of fixed income
securities. See "Investment Objectives and Policies of the Monterey Mutual
Funds."
BIOTECHNOLOGY FUND -- The Biotechnology Fund seeks to achieve long-term
growth of capital through investing primarily in equity securities of companies
that its investment adviser, Murphy Asset Management, Inc. ("Murphy"), believes
can produce products or services that provide or benefit from advances in
biotechnology. The term "biotechnology" includes drug development, production
and distribution; agricultural and industrial biotechnology; genetic sequencing
and mapping; drug delivery; biotechnology-based services and other advances
resulting from research and development programs in the medical, animal and life
sciences. Securities of companies in the Biotechnology sector may be considered
speculative, in particular, because of their unpredictable earnings. As a
consequence, securities of companies in the Biotechnology sector generally
exhibit greater volatility than the overall market. See "Investment Objectives
and Policies of the Monterey Mutual Funds."
TECHNOLOGY FUND -- The Technology Fund seeks to achieve long-term growth of
capital through investing primarily in equity securities of companies that
Murphy believes can produce products or services that provide or benefit from
advances in technology. Murphy interprets the term "technology" broadly to
include semiconductors and electronic components, computers, computer services,
computer peripherals and software, communications, multimedia, instruments,
office automation, factory automation, robotics, consumer electronics,
electronic games, cable television, pharmaceuticals, biotechnology, medical
devices, superconductivity, specialty materials, alternative energy and other
advances resulting from research and development programs. Competitive
pressures may have a significant effect on the financial condition of companies
in the technology sectors. See "Investment Objectives and Policies of the
Monterey Mutual Funds."
CONVERTIBLES FUND -- The Convertibles Fund seeks to maximize total return
through a combination of capital appreciation and income. The Convertibles Fund
under normal circumstances invests at least 65% of its assets in convertible
securities of issuers which Murphy believes can produce products or services
that provide or benefit from advances in technology. The Convertibles Fund may
invest without limitation in lower quality, high risk, high yielding debt
securities, commonly referred to as "junk bonds." These securities are more
risky than higher rated debt securities. Junk bonds have a greater risk of
default, greater sensitivity to general economic conditions and changes in
interest rates as well as a thin secondary market, making them subject to
greater price volatility. See "Investment Objectives and Policies of the
Monterey Mutual Funds."
GLOBAL BOND FUND -- The Global Bond Fund seeks to provide a high level of
current income through investing in bonds denominated in U.S. dollars and other
currencies. (The Global Bond Fund considers a "bond" to mean any debt instrument
other than a money market debt instrument.) The Global Bond Fund provides an
investment vehicle in which investors may participate in the international bond
markets. Because the Global Bond Fund will invest in securities denominated in
foreign currencies, exchange rates may have a significant impact on the
performance of the Global Bond Fund. See "Investment Objectives and Policies of
the Monterey Mutual Funds."
Are there investment risks? Investing in the Funds involves certain risks.
Certain of the Funds invest in foreign securities. See "Investment Practices and
Risks -- Foreign Securities." Each of the Funds may invest in derivatives. See
"Investment Practices and Risks -- Hedging Instruments." The Convertibles Fund
may invest in junk bonds. See "Investment Objectives and Policies of the
Monterey Mutual Funds." The Gold Fund, the Equity Fund, the Biotechnology Fund,
the Technology Fund, the Convertibles Fund and the Global Bond Fund are non-
diversified. See "Principal Investment Restrictions." Certain of the Funds
invest in Mortgage-Backed Securities. See "Investment Practices and Risks --
Principal Investment Risks." The Gold Fund and the Biotechnology Fund
concentrate their investments. See "Principal Investment Restrictions." The
Short-Term Government Fund, Biotechnology Fund, Technology Fund, Convertibles
Fund and Global Bond Fund may engage in leverage. See "Investment Practices and
Risks -- Borrowing." See also "Investment Practices and Risks -- Principal
Investment Risks."
Who provides professional management? The assets of the Government Fund, the
Equity Fund, the Short-Term Government Fund and the Global Bond Fund are managed
by Pacific Income Advisers, Inc. ("PIA"). PIA is assisted in the management of
the Government Fund by Camborne Advisors, Inc. ("Camborne"), which serves as
Sub-Adviser to the Government Fund. The assets of the Technology Fund, the
Biotechnology Fund and the Convertibles Fund are managed by Murphy Investment
Management ("Murphy"). The assets of the Gold Fund are managed by Orrell Capital
Management, a division of Orrell & Company, Inc. ("Orrell"). The Short-Term
Government Fund pays PIA a monthly fee at the annual rate of 0.20% of its daily
net assets. The Government Fund pays PIA a monthly fee at the annual rate of
0.40% of its daily net assets. PIA pays Camborne a monthly fee at the annual
rate of 0.20% of the Government Fund's daily net assets. The Global Bond Fund
pays PIA a monthly fee at the annual rate of 0.40% of its daily net assets. The
Equity Fund pays PIA a monthly fee at the annual rate of 1.0% of its daily net
assets. The Biotechnology Fund pays Murphy a monthly fee at the annual rate of
1.00% of its daily net assets. The Technology Fund pays the Adviser a monthly
fee at the annual rate of 1.0% of its daily net assets. The Convertibles Fund
pays Murphy a monthly fee at the annual rate of 0.625% of its daily net assets.
The Gold Fund pays Orrell a monthly fee at the annual rate of l% of its daily
net assets. With the exception of the Government Fund, the Biotechnology Fund,
the Technology Fund, the Short-Term Government Fund and the Global Bond Fund,
the fees payable by the Funds are reduced at various asset levels for each Fund.
American Data Services, Inc. provides each Fund with administrative and fund
accounting services, for a monthly fee at the annual rate of 0.10% of each
Fund's daily net assets, subject to a minimum monthly fee of approximately
$1,072 per Fund. See "Management."
How can you invest in a Fund? You can buy a Fund's shares through the
Distributor, Syndicated Capital, Inc. or dealers who have sales agreements with
the Distributor at their net asset value plus, in the case of the Gold Fund, the
Government Fund and the Equity Fund, a sales charge. The maximum sales charge
for the Gold Fund, the Government Fund and the Equity Fund is 4.50% of the
offering price; this is equal to about 4.71% of the amount invested. The minimum
initial order is $1,000, except for qualified retirement plans and accounts
which establish pre-authorized check plans, for which the minimum initial order
is $100. The Distributor can change these minimums at any time. Each Fund (other
than the Global Bond Fund) also reimburses the Distributor for distribution
expenses and for fees paid to certain other organizations, pursuant to the
Distribution Plan, of up to 0.99% of the daily net assets of the Gold Fund and
the Equity Fund, of up to 0.25% of the daily net assets of the Biotechnology
Fund, the Technology Fund and the Convertibles Fund, of up to 0.10% of the daily
net assets of the Government Fund and 0.05% of the daily net assets of the
Short-Term Government Fund. See "How to Purchase Shares."
How can you redeem your shares? You can sell back (redeem) your shares at
their net asset value. This will change with the changing value of the portfolio
securities of the Fund whose shares are being redeemed.
If the balance in your account (unless it is a qualified retirement plan)
falls below $500, the Trust may redeem the remaining shares and close the
account in certain circumstances. See "How to Redeem Shares."
What is the value of a share? The value of one of a Fund's shares is its net
asset value. This is simply that Fund's net assets divided by the number of its
shares outstanding. Net assets is the value of securities and other assets less
that Fund's liabilities. See "Net Asset Value."
What is the tax status of the Funds? The Trust intends for each Fund to
qualify as a "regulated investment company" under Subchapter M of the Internal
Revenue Code. See "Dividends and Tax Status."
FINANCIAL HIGHLIGHTS (for a share outstanding throughout the period)
The financial highlights for each of the Funds should be read in conjunction
with the Funds' audited financial statements and the notes thereto which appear
in the Funds' Annual Report to Shareholders. Further information about the
performance of the Funds also is contained in the Funds' Annual Report to
Shareholders, copies of which may be obtained without charge upon request.
(Prior to February 1, 1995, the Monitrend Investment Management, Inc. was the
investment adviser to the Convertibles Fund and the investment objective of the
Convertibles Fund was long-term total return from dividends and realized and
unrealized capital gains from stocks and options which exceeds that of the
Standard & Poor's 100 Index ("Index") through investing in a portfolio of common
stocks which approximately parallels the composition of the Index and by
engaging in various portfolio strategies involving the liquidation of the
portfolio or the use of options and futures contracts to hedge protectively
against adverse changes in stock market values. Between February 1, 1995 and
December 31, 1996, MidCap Associates, Inc. was the investment adviser to the
Convertibles Fund and invested primarily in common stocks included in the S&P
500 Index. Prior to November 1, 1992, Monitrend Investment Management, Inc. was
the investment adviser to the Government Fund. Prior to December 13, 1996,
Monitrend Investment Management, Inc. was investment adviser to the Gold Fund
except during the period between February 1, 1991 and August 17, 1994 when the
investment adviser to the Gold Fund was Kensington Capital Management, Inc.
Prior to December 13, 1996, Monitrend Investment Management, Inc. was investment
adviser to the Technology Fund and the Equity Fund and prior to December 20,
1996, Monitrend Investment Management, Inc. was investment adviser to the
Biotechnology Fund. Prior to March 31, 1997 the investment objective of the
Biotechnology Fund was long-term growth of capital through investing primarily
in equity securities of companies engaged in activities relating to the gaming
and leisure industry. The Global Bond Fund commenced operations on March 31,
1997.
YEARS ENDED APRIL 22,
NOVEMBER 30, 1994*<F1>
--------------- THROUGH
1996 1995 NOVEMBER 30, 1994
----- ----- -----------------
SHORT-TERM GOVERNMENT FUND
(FORMERLY ADJUSTABLE RATE SERIES):
Net asset value, beginning of period $10.12 $9.98 $10.00
------ ------ ------
Income from investment operations
- ---------------------------------
Net investment income 0.56 0.57 0.27
Net realized and unrealized gain (loss)
on investments 0.19 0.14 (0.02)
------ ------ ------
Total from investment operations 0.75 0.71 0.25
------ ------ ------
Less distributions
- ------------------
Dividends from net investment income (0.56) (0.57) (0.27)
Dividends to shareholders from capital
gains (0.10) 0.00 0.00
------ ------ ------
Total distributions (0.66) (0.57) (0.27)
------ ------ ------
Net asset value, end of period $10.21 $10.12 $9.98
====== ====== ======
Total return+<F3> 7.68% 7.50% 2.50%#
- ------------ <F2>
Ratios/supplemental data
- ------------------------
Net assets, end of period (000 omitted) 20,464 3,405 2,041
Ratio of expenses to average
net assets +<F4> 0.44% 0.46% 0.44%#
Ratio of net investment income (loss) <F2>
to average net assets +<F4> 5.51% 5.71% 4.68%#
<F2>
Portfolio turnover rate ***<F5> 21.54% 164% 210%
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
-------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GOVERNMENT INCOME FUND:
Net asset value,
beginning of period $13.88 $12.76 $14.16 $13.13 $13.90 $13.53 $14.35 $13.95 $14.66 $15.02
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations
- ---------------------------------
Net investment income 0.73 0.81 0.87 0.72 0.56 0.77 0.81 1.00 0.76 0.82
Net realized and unrealized gain
(loss) on investments (0.28) 1.12 (1.39) 1.08 (0.68) 0.32 (0.59) 0.22 (0.55) (0.63)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations 0.45 1.93 (0.52) 1.80 (0.12) 1.09 0.22 1.22 0.21 0.19
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions
- ------------------
Dividends to shareholders from net
investment income (0.74) (0.81) (0.88) (0.77) (0.65) (0.72) (1.04) (0.82) (0.92) (0.55)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $13.59 $13.88 $12.76 $14.16 $13.13 $13.90 $13.53 $14.35 $13.95 $14.66
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total return 3.42% 15.56% (3.75%) 13.96% (0.93%) 8.28% 1.76% 9.06% 1.52% 1.27%
- ------------
Ratios/supplemental data
- ------------------------
Net assets, end of
period (000 omitted) 1,293 947 882 1,280 1,893 3,050 3,641 2,806 3,830 2,969
Ratio of expenses to
average net assets +<F4> 1.07% 1.10% 1.10% 1.10% 2.17% 2.50% 2.50% 2.50% 2.50% 2.17%
Ratio of net investment income to
average net assets +<F4> 5.35% 6.04% 6.47% 5.14% 4.32% 5.60% 5.97% 7.02% 5.31% 5.78%
Portfolio turnover rate ***<F5> 129.17% 91% 66% 118% 159% 0% 543% 237% 242% 145%
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 5,
1988*<F1>
THROUGH
YEARS ENDED NOVEMBER 30, NOVEMBER 30,
----------------------------------------------------------------------------
1996**<F7>1995**<F7> 1994 1993 1992 1991 1990 1989 1988
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GOLD FUND:
Net asset value, beginning of period $5.91 $5.87 $11.94 $9.84 $14.49 $15.65 $19.22 $16.60 $18.00
------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations
- ---------------------------------
Net investment income (loss) (0.15) (0.09) (0.15) (0.09) 0.01 0.00 0.29 0.48 0.10
Net realized and unrealized gain
(loss) on investments 2.53 0.13 (5.92) 2.20 (4.66) (0.76) (3.46) 2.28 (1.50)
------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations 2.38 0.04 (6.07) 2.11 (4.65) (0.76) (3.17) 2.76 (1.40)
------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions
- ------------------
Dividends to shareholders from
net investment income 0.00 0.00 0.00 (0.01) 0.00 (0.40) (0.40) (0.14) 0.00
------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $8.29 $5.91 $5.87 $11.94 $9.84 $14.49 $15.65 $19.22 $16.60
====== ====== ====== ====== ====== ====== ====== ====== ======
Total return 40.27% 0.68% (50.84%) 21.47% (32.09%) (5.00%) (16.79%) 16.78% (7.78%)
- ------------
Ratios/supplemental data
- ------------------------
Net assets, end of period (000 omitted) 1,531 421 1,274 3,147 2,493 1,938 1,939 2,482 1,708
Ratio of expenses to average
net assets +<F4> 2.37% 2.44% 2.45% 2.43% 2.45% 2.50% 2.50% 2.50% 2.50%#<F2>
Ratio of net investment income (loss)
to average net assets +<F4> (1.72%) (1.57%) (1.26%) (0.84%) 0.06% (0.03%) 1.61% 3.37% 1.16%#<F2>
Portfolio turnover rate ***<F5> 35.70% 16% 229% 969% 626% 131% 256% 7% 163%
Average commission rate per share $.05482
</TABLE>
<TABLE>
<CAPTION>
APRIL 1, 1992*<F1>
YEARS ENDED NOVEMBER 30, THROUGH
------------------------------------
1996**<F7>1995**<F7> 1994 1993 NOVEMBER 30, 1992
------ ------ ------ ------ ------------------
<S> <C> <C> <C> <C> <C>
EQUITY FUND
(FORMERLY GROWTH SERIES):
Net asset value, beginning of period $15.36 $11.12 $13.35 $13.59 $12.00
------ ------ ------ ------ -------
Income from investment operations
- ---------------------------------
Net investment loss (0.37) (0.24) (0.52) (0.20) (0.04)
Net realized and unrealized gain
(loss) on investments 4.64 4.48 (1.71) (0.04) 1.63
------ ------ ------ ------ -------
Total from investment operations 4.27 4.24 (2.23) (0.24) 1.59
------ ------ ------ ------ -------
Net asset value, end of period $19.63 $15.36 $11.12 $13.35 $13.59
======= ======= ======= ======= =======
Total return 27.80% 38.13% (16.70%) (1.77%) 13.25%
- ------------
Ratios/supplemental data
- ------------------------
Net assets, end of period (000 omitted) 715 526 610 1,261 557
Ratio of expenses to average
net assets +<F4> 2.25% 2.44% 2.44% 2.44% 2.44%#<F2>
Ratio of net investment income
(loss) to average net assets +<F4> (2.07%) (2.21%) (2.22%) (2.02%) (1.31%)#<F2>
Portfolio turnover rate ***<F5> 41.22% 24% 27% 26% 3%
Average commission rate per share $.10548
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 21,
YEARS ENDED NOVEMBER 30, 1993*<F1>
----------------------- THROUGH
1996**<F7>1995**<F7>1994 NOVEMBER 30, 1993
------ ------ ------ -----------------
<S> <C> <C> <C> <C>
BIOTECHNOLOGY FUND
(FORMERLY GAMING & LEISURE SERIES):
Net asset value, beginning of period $6.74 $6.12 $7.99 $8.00
------ ------ ------ ------
Income from investment operations
- ---------------------------------
Net investment loss (0.17) (0.15) (0.08) (0.01)
Net realized and unrealized gain
(loss) on investments 0.62 0.77 (1.79) 0.00
------ ------ ------ ------
Total from investment operations 0.45 0.62 (1.87) 0.01
------ ------ ------ ------
Net asset value, end of period $7.19 $6.74 $6.12 $7.99
====== ====== ====== ======
Total return+<F3> 6.67% 10.13% (23.40%) (0.13%)
- ------------
Ratios/supplemental data
- ------------------------
Net assets, end of period (000 omitted) 231 400 824 634
Ratio of expenses to average
net assets +<F4> 2.65% 2.89% 2.89% 2.70%#
<F2>
Ratio of net investment income (loss)
to average net assets +<F4> (2.31%)(2.18%) (1.18%) (2.03%)#
<F2>
Portfolio turnover rate ***<F5> 2.79% 37% 27% 0
Average commission rate per share $.09613
</TABLE>
<TABLE>
<CAPTION>
NOVEMBER 9,
YEARS ENDED NOVEMBER 30, 1993*<F1>
----------------------- THROUGH
1996**<F7>1995**<F7>1994 NOVEMBER 30, 1993
------ ------ ------ -----------------
<S> <C> <C> <C> <C>
TECHNOLOGY FUND:
Net asset value, beginning of period $17.81 $14.35 $14.82 $15.00
------ ------ ------ ------
Income from investment operations
- ---------------------------------
Net investment loss (0.40) (0.32) (0.18) (0.01)
Net realized and unrealized gain
(loss) on investments 4.86 4.19 (0.29) (0.17)
------ ------ ------ ------
Total from investment operations 4.46 3.87 (0.47) (0.18)
------ ------ ------ ------
Less distributions
- ------------------
Dividends to shareholders from
capital gains (1.76) (0.41) 0.00 0.00
------ ------ ------ ------
Net asset value, end of period $20.51 $17.81 $14.35 $14.82
====== ====== ====== ======
Total return+<F3> 26.32% 26.95% (3.17%) (1.20%)
- ------------
Ratios/supplemental data
- ------------------------
Net assets, end of period
(000 omitted) 886 281 283 38
Ratio of expenses to average
net assets +<F4> 2.34% 2.44% 2.44% 1.70%#<F2>
Ratio of net investment income to
average net assets +<F4> (2.06%) (1.97%) (1.79%) (1.63%)#<F2>
Portfolio turnover rate ***<F5> 17.33% 41% 29% 0
Average commission rate per share $.07989
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 5,
1988*<F1>
THROUGH
YEARS ENDED NOVEMBER 30, NOVEMBER 30,
----------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988
----- ----- ----- ----- ----- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONVERTIBLES FUND
(FORMERLY GROWTH & INCOME SERIES):
Net asset value, beginning of period $21.42 $16.67 $17.20 $18.53 $19.20 $18.46 $19.00 $16.59 $18.00
----- ----- ----- ----- ----- ----- ----- ----- ------
Income from investment operations
- ---------------------------------
Net investment income 0.01 0.02 0.09 0.07 0.16 0.14 0.23& 0.04 0.15
Net realized and unrealized gain
(loss) on investments 5.23 4.82 (0.58) (1.22) (0.67) 0.82 (0.68) 2.48 (1.56)
----- ----- ----- ----- ----- ----- ----- ----- ------
Total from investment operations 5.24 4.84 (0.49) (1.15) (0.51) 0.96 (0.45) 2.52 (1.41)
----- ----- ----- ----- ----- ----- ----- ----- ------
Less distributions
- ------------------
Dividends to shareholders from net
investment income (0.02) (0.09) (0.04) (0.18) (0.16) (0.22) (0.09) (0.11) 0.00
----- ----- ----- ----- ----- ----- ----- ----- ------
Net asset value, end of period $26.64 $21.42 $16.67 $17.20 $18.53 $19.20 $18.46 $19.00 $16.59
====== ====== ====== ====== ====== ====== ====== ====== =======
Total return+<F3> 24.49% 29.19%(2.86%) (6.26%)(2.68%) 5.26%(2.38%) 15.28% (7.83%)
- ------------
Ratios/supplemental data
- ------------------------
Net assets, end of period (000 omitted) 1,560 1,377 1,573 2,538 6,149 12,667 7,145 2,379 372
Ratio of expenses to average
net assets +<F4> 2.26% 2.44% 2.44% 2.44% 2.44% 2.50% 2.51%& 2.50% 2.50%#<F2>
Ratio of net investment income to <F6>
average net assets +<F4> 0.04% 0.10% 0.46% 0.21% 0.57% 0.90% 2.02% 1.98% 1.54%#<F2>
Portfolio turnover rate ***<F5> 80.93% 152% 0% 1.59% 4.52% 13.30%110.00% 32.00% 291.00%
Average commission rate per share $.13859
</TABLE>
NOTES TO FINANCIAL HIGHLIGHTS
*<F1>Commencement of Operations.
#<F2>Annualized.
+<F3>Total return does not reflect sales loads charged by the Funds and is not
annualized for periods less than one year.
+<F4>Net of expense reimbursement. If the expense reimbursement had not been in
effect, the ratio of expenses to average net assets for the periods illustrated
for each Fund would have been as follows: for the Government Fund, 5.68%,
5.73%, 5.52%, 3.66%, 3.86%, 3.53%, 3.60%, 4.13%, 4.62%, and 4.03%, respectively;
for the Gold Fund, 6.15%, 12.52%, 5.58%, 4.55%, 4.71%, 4.48%, 4.48%, 5.19% and
5.06%, respectively; for the Equity Fund, 11.73%, 11.44%, 8.52%, 6.44% and
12.12%, respectively; for the Technology Fund, 10.44%, 18.74%, 11.19% and
30.48%, respectively; for the Biotechnology Fund, 15.28%, 9.96%, 6.40% and
5.19%, respectively, for the Convertibles Fund, 5.11%, 6.08%, 5.46%, 4.39%,
3.46%, 3.85%, 3.94%, 13.72% and 16.13%, respectively; and for the Short-Term
Government Fund, 1.19%, 2.01%, 3.46%.
***<F5>An annual portfolio turnover rate is, in general, the percentage computed
by taking the lesser of purchases or sales of portfolio securities (excluding
certain short-term securities) for a year and dividing that amount by the
monthly average of the market value of such securities during the year.
&<F6>On a per share basis, includes taxes of $.01 and 0.01% expenses of average
net assets.
**<F7>Based on average shares outstanding.
INVESTMENT OBJECTIVES AND POLICIES OF THE MONTEREY MUTUAL FUNDS
PIA SHORT-TERM GOVERNMENT FUND
THE OBJECTIVE AND BASIC PORTFOLIO OF THE SHORT-TERM GOVERNMENT FUND (FORMERLY
ADJUSTABLE RATE FUND)
The Short-Term Government Fund's objective is to provide investors with a high
level of current income, consistent with low volatility of principal through
investing in short term, adjustable rate and floating rate U.S. Government
securities. Under normal circumstances at least 65% of the Short-Term Government
Fund's portfolio will consist of short-term U.S. government securities and
adjustable rate and floating rate U.S. government securities having a duration
of less than three (3) years.
The Short-Term Government Fund's portfolio will have a maximum duration of
three (3) years. Under normal interest rate conditions, the Short-Term
Government Fund's actual duration is expected to be in a range of six-months to
two-years. The Short-Term Government Fund's duration is a measure of the price
sensitivity of the portfolio, including expected cash flow and mortgage
prepayments for mortgage pass through securities, under a wide range of interest
rate scenarios. Maturity measures only the time until final payment is due on a
bond or other debt security; it does not take into account the pattern of a
security's cash flows over time, including how cash flow is affected by
prepayments and by changes in interest rates. In computing the duration of its
portfolio, the Short-Term Government Fund will have to estimate the duration of
obligations that are subject to prepayment or redemption by the issuer taking
into account the influence of interest rates on prepayments and coupon flows.
This method of computing duration is known as option-adjusted duration. The
Short-Term Government Fund may use various techniques to shorten or lengthen the
option-adjusted duration of its portfolio including the acquisition of debt
obligations at a premium or discount or the purchase or sale of futures
contracts on debt securities or put and call options on debt securities and
futures contracts on debt securities. The Short-Term Government Fund will
maintain a dollar-weighted maturity of not more than three years determined in
accordance with Securities and Exchange Commission guidelines. See "Other
Investments and Practices."
When interest rates decline, the value of a portfolio invested in fixed rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of a portfolio invested in fixed rate obligations can be expected to
decline. In contrast, as interest rates on adjustable rate mortgage loans are
reset periodically, yields of portfolio securities representing interests in
such loans will gradually align themselves to reflect changes in market interest
rates, causing the value of such a portfolio to fluctuate less dramatically in
response to interest rate fluctuations than would a portfolio of fixed rate
obligations. PIA expects the Short-Term Government Fund's net asset value to be
relatively stable during normal market conditions since the Short-Term
Government Fund's portfolio will consist primarily of short term U.S. government
securities, floating rate U.S. government securities and adjustable rate
Mortgage-Backed Securities (as hereinafter defined below) and since it will
maintain a maximum duration of three (3) years and utilize certain interest rate
hedging techniques. However, a sudden and extreme increase in prevailing
interest rates may cause a significant decline in the Short-Term Government
Fund's net asset value. Conversely, a sudden and extreme decline in interest
rates could result in an increase in the Short-Term Government Fund's net asset
value.
Because the Short-Term Government Fund's investments are interest rate
sensitive, its performance will depend in large part upon the ability of PIA to
anticipate and respond to fluctuations in market interest rates and to utilize
appropriate strategies to maximize returns to the Short-Term Government Fund,
while attempting to minimize the associated risks to its invested capital.
Operating results will also depend upon the availability of opportunities for
the investment of the Short-Term Government Fund's assets, including purchases
and sales of suitable securities.
MORTGAGE-BACKED SECURITIES
Mortgage-Backed Securities are securities that directly or indirectly represent
participations in, or are collateralized by and payable from, mortgage loans
secured by real property.
The investment characteristics of adjustable and fixed rate Mortgage-Backed
Securities differ from those of traditional fixed income securities. The major
differences include the payment of interest and principal on Mortgage-Backed
Securities on a more frequent (usually monthly) schedule, and the possibility
that principal may be prepaid at any time due to prepayments on the underlying
mortgage loans or other assets. These differences can result in significantly
greater price and yield volatility than is the case with traditional fixed
income securities. As a result, if the Short-Term Government Fund purchases
Mortgage-Backed Securities at a premium, a faster than expected prepayment rate
will reduce both the market value and the yield to maturity from those which
were anticipated. A prepayment rate that is slower than expected will have the
opposite effect of increasing yield to maturity and market value. Conversely, if
the Short-Term Government Fund purchases Mortgage-Backed Securities at a
discount, faster than expected prepayments will increase, while slower than
expected prepayments will reduce, yield to maturity and market value. PIA will
seek to manage these potential risks and benefits by investing in a variety of
Mortgage-Backed Securities and by using certain hedging techniques. See "Other
Investments and Practices."
Prepayments on a pool of mortgage loans are influenced by a variety of
factors, including economic conditions, changes in mortgagors' housing needs,
job transfer, unemployment, mortgagors' net equity in the mortgage properties
and servicing decisions. The timing and level of prepayments cannot be
predicted. Generally, however, prepayments on adjustable rate mortgage loans and
fixed rate mortgage loans will increase during a period of falling mortgage
interest rates and decrease during a period of rising mortgage interest rates.
Accordingly, the amounts of prepayments available for reinvestment by the Short-
Term Government Fund are likely to be greater during a period of declining
mortgage interest rates. If general interest rates also decline, such
prepayments are likely to be reinvested at lower interest rates than the Short-
Term Government Fund was earning on the Mortgage-Backed Securities that were
prepaid.
A significant portion of the mortgage loans underlying the Mortgage-Backed
Securities in which the Short-Term Government Fund invests will be adjustable
rate mortgage loans ("ARMs"). ARMs eligible for inclusion in a mortgage pool
will generally provide for a fixed initial mortgage interest rate for a
specified period of time. Thereafter, the interest rates (the "Mortgage Interest
Rates") may be subject to periodic adjustment based on changes in the applicable
index rate (the "Index Rate"). The adjusted rate would be equal to the Index
Rate plus a gross margin, which is a fixed percentage spread over the Index Rate
established for each ARM at the time of its origination.
Adjustable interest rates can cause payment increases that some mortgagors
may find difficult to make. However, certain ARMs may provide that the Mortgage
Interest Rate may not be adjusted to a rate above an applicable lifetime maximum
rate or below an applicable lifetime minimum rate for such ARMs. Certain ARMs
may also be subject to limitations on the maximum amount by which the Mortgage
Interest Rate may adjust for any single adjustment period (the "Maximum
Adjustment"). Other ARMs ("Negatively Amortizing ARMs") may provide instead or
as well for limitations on changes in the monthly payment on such ARMs.
Limitations on monthly payments can result in monthly payments which are greater
or less than the amount necessary to amortize a Negatively Amortizing ARM by its
maturity at the Mortgage Interest Rate in effect in any particular month. In the
event that a monthly payment is not sufficient to pay the interest accruing on a
Negatively Amortizing ARM, any such excess interest is added to the principal
balance of the loan, causing negative amortization, and is repaid through future
monthly payments. It may take borrowers under Negatively Amortizing ARMs longer
periods of time to achieve equity and may increase the likelihood of default by
such borrowers. In the event that a monthly payment exceeds the sum of the
interest accrued at the applicable Mortgage Interest Rate and the principal
payment which would have been necessary to amortize the outstanding principal
balance over the remaining term of the loan, the excess (or "accelerated
amortization") further reduces the principal balance of the ARM. Negatively
Amortizing ARMs do not provide for the extension of their original maturity to
accommodate changes in their Mortgage Interest Rate. As a result, unless there
is a periodic recalculation of the payment amount (which there generally is),
the final payment may be substantially larger than the other payments. These
limitations on periodic increases in interest rates and on changes in monthly
payments protect borrowers from unlimited interest rate and payment increases.
Mortgage-Backed Securities include Mortgage-Backed securities or other
securities collateralized by U.S. Government securities, including Mortgage-
Backed Securities representing ownership interests in the underlying mortgage
loans and providing for monthly payments that are a "pass-through" of the
monthly interest and principal payments (including any prepayments) made by the
individual borrowers on the pooled mortgage loans, net of any fees paid to the
guarantor of such securities and the servicer of the underlying mortgage loans.
Such Mortgage-Backed Securities will include those issued or guaranteed by the
Government National Mortgage Association ("Ginnie Mae"), the Federal National
Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage
Association ("Freddie Mac"). Additional information regarding Ginnie Mae
certificates, Fannie Mae certificates and Freddie Mac certificates is set forth
in the Statement of Additional Information.
The Short-Term Government Fund may also invest in multiple class U.S.
Government securities, including guaranteed collateralized mortgage obligations
("CMOs") and REMIC pass-through or participation certificates. A REMIC is a CMO
that qualifies for special tax treatment under the Code.
CMOs and REMIC certificates are issued in multiple classes. Each class of
CMOs or REMIC certificates, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the mortgage loans or
other assets ("Mortgage Assets") underlying the CMOs or REMIC certificates may
cause some or all of the class of CMOs or REMIC certificates to be retired
substantially earlier than their final distribution dates. Generally, interest
is paid or accrued on all classes of CMOs or REMIC certificates on a monthly
basis.
The principal of and interest on the Mortgage Assets may be allocated among
the several classes of CMOs or REMIC certificates in various ways. In certain
structures (known as "sequential pay" CMOs or REMIC certificates), payments of
principal, including any principal prepayments, on the Mortgage Assets generally
are applied to the classes of CMOs or REMIC certificates in the order of their
respective final distribution dates. Thus no payment of principal will be made
on any class of sequential pay CMOs or REMIC certificates until all other
classes having an earlier final distribution date have been paid in full.
Additional structures of CMOs and REMIC certificates include, among others,
"parallel pay" CMOs and REMIC certificates. Parallel pay CMOs or REMIC
certificates are those which are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
A wide variety of REMIC certificates may be issued in the parallel pay or
sequential pay structures. These securities include accrual certificates (also
known as "Z-Bonds"), which only accrue interest at a specified rate until all
other certificates having an earlier final distribution date have been retired
and are converted thereafter to an interest-payment security, and planned
amortization class ("PAC") certificates, which are parallel pay REMIC
certificates which generally require that specified amounts of principal be
applied on each payment date to one or more classes of REMIC certificates (the
"PAC Certificates"), even though all other principal payments and prepayments of
the Mortgage Assets are then required to be applied to one or more other classes
of the certificates. The scheduled principal payments for PAC Certificates
generally have the highest priority on each payment date after interest due has
been paid to all classes entitled to receive interest currently. Shortfalls, if
any, are added to the amount payable on the next payment date. The PAC
Certificate payment schedule is calculating the final distribution date of each
class of PAC. In order to create PAC tranches, one or more tranches generally
must be created that absorb most of the volatility in the underlying mortgage
assets. These tranches tend to have market prices and yields that are much more
volatile than the PAC classes.
The Short-Term Government Fund may invest in stripped Mortgage-Backed U.S.
government securities ("SMBS"). SMBS are usually structured with two classes
that receive different proportions of the interest and principal distributions
from a pool of Mortgage Assets. A common type of SMBS will have one class
receiving all of the interest from the Mortgage Assets, while the other class
will receive all of the principal. However, in some instances, one class will
receive some of the interest and most of the principal while the other class
will receive most of the interest and the remainder of the principal. If the
underlying Mortgage Assets experience greater than anticipated prepayments of
principal, the Short-Term Government Fund may fail to fully recover its initial
investment in these securities. Certain SMBS may not be readily marketable and
will be considered illiquid for purposes of the Short-Term Government Fund's
limitation on investments in illiquid securities. Whether SMBS are liquid or
illiquid will be determined in accordance with guidelines established by the
Trust's Board of Trustees. The market value of the class consisting entirely of
principal payments generally is unusually volatile in response to changes in
interest rates. The yields on a class of SMBS that receives all or most of the
interest from Mortgage Assets are generally higher than prevailing market yields
on other Mortgage-Backed Securities because their cash flow patterns are more
volatile and there is a greater risk that the initial investment will not be
fully recouped. PIA will seek to manage these risks (and potential benefits) by
investing in a variety of such securities and by using certain hedging
techniques. See "Investment Practices and Risks."
OTHER INVESTMENTS AND PRACTICES
The Short-Term Government Fund may purchase securities on a when-issued basis.
When-issued transactions arise when securities are purchased by the Short-Term
Government Fund with payment and delivery taking place in the future in order to
secure what is considered to be an advantageous price and yield to the Short-
Term Government Fund at the time of entering into the transaction. The Short-
Term Government Fund may also purchase securities on a forward commitment basis.
In a forward commitment transaction, the Short-Term Government Fund contracts to
purchase securities for a fixed price at a future date beyond customary
settlement time. The Short-Term Government Fund is required to hold and maintain
in a segregated account until the settlement date, cash or other liquid assets
in an amount sufficient to meet the purchase price. Alternatively, the Short-
Term Government Fund may enter into offsetting contracts for the forward sale of
other securities that it owns. The purchase of securities on a when-issued or
forward commitment basis involves a risk of loss if the value of the security to
be purchased declines prior to the settlement date. Although the Short-Term
Government Fund would generally purchase securities on a when-issued or forward
commitment basis with the intention of actually acquiring securities for its
portfolio, the Short-Term Government Fund may dispose of a when-issued security
or forward commitment prior to settlement if PIA deems it appropriate to do so.
The Short-Term Government Fund may enter into mortgage "dollar rolls" in
which the Short-Term Government Fund sells Mortgage-Backed Securities for
delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type, coupon and maturity) securities on a specified
future date. During the roll period, the Short-Term Government Fund forgoes
principal and interest paid on the Mortgage-Backed Securities. The Short-Term
Government Fund is compensated by the difference between the current sales price
and the lower forward price for the future purchase (often referred to as the
"drop") as well as by the interest earned on the cash proceeds of the initial
sale. A "covered roll" is a specific type of dollar roll for which there is an
offsetting cash position or a cash equivalent security position which matures on
or before the forward settlement date of the dollar roll transaction. The Short-
Term Government Fund will only enter into covered rolls. Covered rolls are not
treated as a borrowing or other senior security and will be excluded from the
calculation of the Short-Term Government Fund's borrowings and other senior
securities.
The Short-Term Government Fund may invest in U.S. Government securities of
the same types as the Government Fund. See "The Objectives, Basic Portfolio and
Allocation of Assets of the Government Income Fund." The Short-Term Government
Fund will not invest more than 10% of the value of its net assets in illiquid
securities.
In addition, the Short-Term Government Fund may invest up to 35% of its total
assets in Mortgage-Backed Securities, corporate bonds and debentures rated A or
better by Standard &Poor's Corporation ("S&P") or by Moody's Investors Service,
Inc. ("Moody's") and commercial paper master notes rated A-1 or better by S&P or
prime-1 by Moody's. A description of the foregoing ratings is set forth in the
Appendix to this Prospectus and in the Statement of Additional Information.
Finally, the Short-Term Government Fund may leverage its investments and lend
its portfolio securities. See "Borrowing" and "Lending Portfolio Securities"
below.
CAMBORNE GOVERNMENT INCOME FUND
THE OBJECTIVES, BASIC PORTFOLIO AND ALLOCATION OF ASSETS OF THE GOVERNMENT
INCOME FUND
The objectives of the Government Income Fund are growth of capital, whether over
the short- or long-term, income and preservation of capital. PIA will seek to
achieve the Government Income Fund's objectives by investing, as a matter of
fundamental policy, at least 65% of the total assets in securities of any
maturity which are issued or guaranteed by the U.S. Government or by any of its
agencies or instrumentalities, including U.S. Government-sponsored corporations
(which may be subject to repurchase agreements), and in the hedging instruments
discussed below. Up to 35% of the portfolio assets of the Government Income Fund
may be invested in other securities, including foreign securities, which at the
time of purchase are rated A or better by any of S&P, Moody's, Duff & Phelps,
Inc. ("Duff & Phelps") or IBAC, Inc. ("IBAC"). A description of the foregoing
ratings is set forth in the Appendix to this Prospectus and in the Statement of
Additional Information.
Obligations of certain agencies and instrumentalities of the U.S. Government,
such as those of the Federal Housing Administration, Farmers Home
Administration, Export-Import Bank of the United States, Small Business
Administration and the Government National Mortgage Association, are supported
by the full faith and credit of the U.S. Treasury; others, such as the Federal
Home Loan Banks, Federal Intermediate Credit Banks and the Tennessee Valley
Authority, are supported by the right of the issuer to borrow from the U.S.
Treasury; others, such as those of the Federal National Mortgage Association,
are supported by the discretionary authority of the U.S. Government to purchase
the agency's obligations; still others, such as those of the Student Loan
Marketing Association, are supported only by the credit of the instrumentality.
While the U.S. Government currently provides financial support to such U.S.
Government-sponsored instrumentalities, including U.S. Government-sponsored
corporations, no assurance can be given that it always will do so. The U.S.
Government, its agencies and instrumentalities, including U.S. Government-
sponsored corporations, do not guarantee the market value of their securities,
and consequently, the value of such securities may fluctuate.
The Government Income Fund may invest in zero coupon Treasury securities
which consist of Treasury Notes and Bonds that have been stripped of their
unmatured interest coupons by the U.S. Department of Treasury. A zero coupon
Treasury security pays no interest to its holders during its life and its value
to an investor consists of the difference between its face value at the time of
maturity and the price for which it was acquired, which is generally an amount
much less than its face value. Zero coupon Treasury securities are generally
subject to greater fluctuations in value in response to changing interest rates
than debt obligations that pay interest currently.
The allocation between U.S. Government securities and other securities is
based on PIA's analysis of the yield differential between these sectors. When
the yield differential between government and non-government sectors is narrow,
PIA will in most situations structure the portfolio so that the proportion of
assets invested in U.S. Government securities is above average. Conversely, when
the differential is high, the proportion invested in U.S. Government securities
will in most situations be below average.
The average portfolio duration of the Government Income Fund, and thus the
allocation of its assets between longer term securities and shorter term
securities will depend on PIA's outlook on the shapes of the yield curves of
Treasury securities and other major classifications of fixed income securities,
and thus on the market values of such securities. PIA maintains a data base of
historical yield curve shapes and has developed a methodology of analyzing such
shapes. PIA believes that periodic deviations from the normal yield curve
provide investors with significant opportunities to achieve above average
portfolio yields on a risk-adjusted basis. PIA will generally seek to invest the
Government Fund's assets in those securities which are most likely to experience
the most significant declines in relative yield as their yield curves "spring
back" to a more normal shape. When the yield curves are relatively steep, the
Government Fund's portfolio will likely consist of securities having longer than
average maturities. When the yield curves are flat or inverted, such Fund's
portfolio will likely consist of securities having shorter than average
maturities. There is no assurance that PIA's portfolio allocation, as described
above, will be correct. Incorrect allocation could result in the Government
Income Fund's having a long dollar-weighted average portfolio maturity when
interest rates are increasing, or the Government Income Fund could have a
substantial portion of its assets hedged in a short hedge when interest rates
are declining.
See "Principal Investment Risks" for possible risks, and the Statement of
Additional Information for a description, of investing in U.S. Government
securities.
OCM GOLD FUND
THE OBJECTIVE AND BASIC PORTFOLIO OF THE GOLD FUND
The Gold Fund's investment objective is long-term growth of capital. The Gold
Fund will attempt to achieve its objective by investing primarily in equity
securities of domestic and foreign companies engaged in exploration, refining,
development, manufacture, production or marketing of gold and other precious
metals products. Under normal circumstances, at least 65% of the Gold Fund's
assets will be invested in equity securities of such companies whose activities
are related to gold, or in call options where the underlying investments to
which the calls relate are such equity securities.
In addition to gold related investments, the Gold Fund may invest in
securities of companies whose activities are related to other precious metals,
such as silver, platinum and palladium, or in companies engaged in the
manufacture or production of products incorporating precious metals, such as
jewelry, photographic supplies, medical equipment and supplies and companies
engaged in marketing precious metals or precious metals products. The Gold Fund
may also purchase gold, silver, platinum and palladium bullion. The Gold Fund
may also purchase such metals in the form of coins, if there is an actively
quoted market for the coins. Coins will only be purchased for their metallic
value and not for their currency or numismatic value.
The Gold Fund will invest primarily in equity securities -- that is, common
stocks or securities having equity characteristics, such as warrants or in call
options as indicated above. At any time Orrell deems it advisable for temporary
defensive purposes, the Gold Fund may invest all or a portion of its assets in
U.S. Government securities, principally expected to be Treasury Bills, bank
instruments or commercial paper master notes. See "Principal Investment Risks"
for possible risks, and the Statement of Additional Information for a
description, of U.S. Government securities. The Gold Fund may hedge its equity
holdings and write covered call and put options to generate income for liquidity
purposes (see "Hedging Instruments"). The Gold Fund may also lend its securities
as discussed below. (See "Lending Portfolio Securities").
The production and marketing of gold and precious metals may be affected by
the action of certain governments and changes in existing governments. For
example, the mining of gold is highly concentrated in a few countries. In
current order of magnitude of production of gold bullion, the five largest
producers of gold are the Republic of South Africa, the former USSR, Canada,
Brazil and the United States. It is expected that a majority of gold mining
companies in which the Gold Fund will invest will be located within the United
States, Canada and Australia.
The prices of gold and precious metals mining securities have been subject to
substantial price fluctuations over short periods of time and may be affected by
unpredictable international monetary and political developments such as currency
devaluations or revaluations, economic and social conditions within a country,
trade imbalances, or trade or currency restrictions between countries. The use
of gold or Special Drawing Rights (which are used by members of the
International Monetary Fund for international settlements) to settle net
deficits and surpluses in trade and capital movements between nations subjects
the supply and demand, and therefore the price of gold, to a variety of economic
factors that normally do not affect other investments.
Investments in gold, silver, platinum and palladium bullion do not generate
income and will subject the Gold Fund to taxes and insurance, and shipping and
storage costs. The sole source of return to the Gold Fund from such investments
would be gains realized on sales, and a negative return would be realized if
such investments are sold at a loss. The Gold Fund intends to qualify as a
regulated investment company under the Internal Revenue Code of 1986 (the
"Code") so that the Gold Fund will not be subject to Federal income taxes on its
taxable income to the extent distributed to shareholders. The Gold Fund's
investment in gold, silver, platinum and palladium bullion may result in its
failure to meet certain of the income or asset tests prescribed by the Code. To
reduce this risk, Orrell will endeavor to manage the Gold Fund's portfolio so
that (i) less than 10% of the Gold Fund's gross income each year will be derived
from its investments in gold, silver, platinum and palladium bullion and (ii)
less than 50% of the value of the Gold Fund's assets, at the end of each
quarter, will be invested in gold, silver, platinum and palladium bullion.
PIA EQUITY FUND
THE OBJECTIVE AND BASIC PORTFOLIO OF THE EQUITY FUND
(FORMERLY GROWTH FUND)
The Equity Fund's objective is long-term growth of capital. The Equity Fund will
attempt to achieve its objective by investing primarily in growth stocks. PIA
considers growth stocks to be common stocks of issuers that it anticipates will
grow at a higher than average rate per year in both sales and earnings. Under
normal circumstances, at least 65% of the Equity Fund's assets will be invested
in growth stocks.
The issuers of the growth stocks in which the Equity Fund invests may exhibit
some or all of the following characteristics: (i) a positive cash flow to allow
for self-financing growth; (ii) a return on equity of close to 20%; (iii) a debt
to equity ratio lower than that of the average public company; (iv) the payment
of taxes at normal tax rates; (v) a diversified customer and supplier base; (vi)
accounts receivable having an average maturity of less than 70 days; and (vii)
increasing operating margins and declining sales and administrative expenses.
Such companies may not be the largest and best known companies in their industry
groups. Frequently such companies will be in rapidly growing sectors of the
economy and often bring proprietary skills to a developing niche in a particular
market.
In selecting investments PIA will consider the public filings of issuers with
the Securities and Exchange Commission as well as research reports of broker-
dealers and trade publications. In appropriate situations, PIA may meet with
management. Greater weight will be given to internal factors such as product or
service development than to external factors such as interest rate changes and
general stock market trends.
When PIA deems it advisable for temporary defensive purposes, the Equity Fund
may invest a portion of its assets in U.S. Government securities, principally
expected to be Treasury Bills, bank instruments, commercial paper master notes
or repurchase agreements. See "Principal Investment Risks" for possible risks,
and the Statement of Additional Information for a description of U.S. Government
securities and repurchase agreements. Additionally the Equity Fund may hedge
some or all of its portfolio of common stocks. See "Hedging Instruments."
Since the major portion of the Equity Fund's portfolio will normally be
invested in common stocks, the Equity Fund's net asset value may be subject to
greater fluctuations than a portfolio containing a substantial amount of fixed
income securities. There can be no assurance that the investment objective of
the Equity Fund will be realized. Nor can there be assurance that the Equity
Fund's portfolio will not decline in value.
The Equity Fund may invest in equity securities of smaller companies which
are judged by PIA to possess strong growth characteristics. Such companies may
be new, less well-known or undercapitalized companies. Securities of smaller
growth companies may be subject to more abrupt or erratic market movements than
those of larger, more established companies, in particular, because such
companies typically are subject to greater fluctuation in earnings and
prospects. In addition, securities of smaller companies may be subject to
liquidity risk.
MURPHY NEW WORLD BIOTECHNOLOGY FUND
THE OBJECTIVE AND BASIC PORTFOLIO OF THE BIOTECHNOLOGY FUND (FORMERLY GAMING &
LEISURE FUND)
The Biotechnology Fund's objective is long-term growth of capital through
investing primarily in equity securities of companies that Murphy believes can
produce products or services that provide or benefit from advances in
biotechnology. The term "biotechnology" includes drug development, production
and distribution; agricultural and industrial biotechnology; genetic sequencing
and mapping; drug delivery; biotechnology-based services and other advances
resulting from research and development programs in the medical, animal and life
sciences.
Under normal circumstances, at least 65%, but at all times 25%, of the
Biotechnology Fund's assets will be invested in equity securities of companies
engaged in the biotechnology sector. The equity securities in which the
Biotechnology Fund may invest will consist of common stocks, preferred stocks
and convertible securities, as well as warrants to purchase such securities. The
Biotechnology Fund does not intend to invest in debt securities of companies
engaged in activities related to the biotechnology sector, other than temporary
investments in money market instruments for defensive purposes as described
below.
Companies in the biotechnology sector have unpredictable earnings. Products
offered by companies in the biotechnology sector are subject to risks of
obsolescence and intense competition. Companies in the biotechnology sector are
subject to extensive government regulation and may be affected by the
enforcement of patent, trademark and other intellectual property laws.
Securities of companies in the biotechnology sector generally exhibit greater
volatility than the overall market. Such companies may be of small or medium
capitalization and as a consequence their securities may be subject to more
abrupt or erratic market movements than those of larger, more established
companies and may be subject to liquidity risk.
When Murphy deems it advisable for temporary defensive purposes, the
Biotechnology Fund may invest a portion of its assets in U.S. Government
securities, principally expected to be Treasury Bills, bank instruments,
commercial paper master notes or repurchase agreements. See "Principal
Investment Risks" for possible risks, and the Statement of Additional
Information for a description of U.S. Government securities and repurchase
agreements. Additionally the Biotechnology Fund may hedge some or all of its
portfolio of common stocks. See "Hedging Instruments." The Biotechnology Fund
also may leverage its investments, lend its portfolio securities and invest in
foreign securities. See "Borrowing", "Lending Portfolio Securities" and "Foreign
Securities" below.
The Biotechnology Fund may effect "short sales" of securities. A "short sale"
is made by selling a security the Fund does not own. Whenever the Biotechnology
Fund effects a short sale, it will put in a segregated account cash or other
liquid securities equal to the difference between (a) the market value of the
securities sold short and (b) any cash or United States government securities
required to be deposited as collateral with the broker in connection with the
short sale (but not including the proceeds of the short sale). Until the
Biotechnology Fund replaces the security it borrowed to make the short sale, it
must maintain daily the segregated account at such a level that the amount
deposited in it plus the amount deposited with the broker as collateral will
equal the current market value of the securities sold short. No more than 25% of
the value of Biotechnology Fund's net assets will be, when added together, (a)
deposited as collateral for the obligation to replace securities borrowed to
effect short sales, and (b) allocated to segregated accounts in connection with
short sales. The Biotechnology Fund's ability to make short sales may be limited
by a requirement applicable to "regulated investment companies" under Subchapter
M of the Internal Revenue Code that no more than 30% of a fund's gross income in
any year may be the result of gains from the sale of property held for less than
three months. See "Dividends and Tax Policy."
MURPHY NEW WORLD TECHNOLOGY FUND
THE OBJECTIVE AND BASIC PORTFOLIO OF THE TECHNOLOGY FUND
The Technology Fund's objective is long-term growth of capital through investing
primarily in equity securities of companies that Murphy believes can produce
products or services that provide or benefit from advances in technology. Murphy
interprets the term "technology" broadly to include semiconductors and
electronic components, computers, computer services, computer peripherals and
software, communications, multimedia, instruments, office automation, factory
automation, robotics, consumer electronics, electronic games, cable television,
pharmaceuticals, biotechnology, medical devices, superconductivity, specialty
materials, alternative energy and other advances resulting from research and
development programs.
Under normal circumstances, at least 65% of the Technology Fund's assets will
be invested primarily in equity securities of companies engaged in activities
related to the technology sector. The equity securities in which the Technology
Fund may invest will consist of common stocks, preferred stocks and convertible
securities, as well as warrants to purchase such securities. The Technology Fund
does not intend to invest in debt securities of companies engaged in activities
related to the technology sector, other than temporary investments in money
market instruments for defensive purposes as described below.
Competitive pressures may have a significant effect on the financial
condition of companies in the technology sector. Technology companies may
become increasingly sensitive to short product cycles and aggressive pricing.
When Murphy deems it advisable for temporary defensive purposes, the
Technology Fund may invest a portion of its assets in U.S. Government
securities, principally expected to be Treasury Bills, bank instruments or
commercial paper master notes. See "Principal Investment Risks" for possible
risks, and the Statement of Additional Information for a description of U.S.
Government securities. Additionally the Technology Fund may hedge some or all
of its portfolio of common stocks. See "Hedging Instruments." The Technology
Fund also may leverage its investments and lend its portfolio securities. See
"Borrowing" and "Lending Portfolio Securities" below. The Technology Fund may
effect "short sales" of securities to the same extent as the Biotechnology Fund.
See "The Objective and Basic Portfolio of the Biotechnology Fund."
MURPHY NEW WORLD TECHNOLOGY CONVERTIBLES FUND
THE OBJECTIVE AND BASIC PORTFOLIO OF THE CONVERTIBLES FUND (FORMERLY GROWTH &
INCOME FUND)
The Convertibles Fund's objective is to maximize total return through a
combination of capital appreciation and income. The Convertibles Fund under
normal circumstances invests at least 65% of its assets in convertible
securities of issuers which Murphy believes can produce products or services
that provide or benefit from advances in technology.
Convertible securities include corporate bonds, debentures, notes or
preferred stocks that can be converted into (that is exchanged for) common stock
or other equity securities of the same or a different issuer, and other
securities, such as warrants, that may also provide an opportunity for equity
participation. These securities are generally convertible at either a stated
price or a stated rate (that is, for a specific number of shares of common stock
or of another entity). Because of this conversion feature, the price of the
convertible security will normally vary in some proportion to changes in the
price of the underlying common stock. A convertible security will normally also
provide a higher yield than the underlying common stock. This higher yield may
tend to cushion the convertible security against declines in the price of the
underlying stock.
In seeking to achieve the Convertibles Fund's investment objective, Murphy
may invest, without limitation, in convertible securities rated as low as C by
S&P or Moody's. Securities rated less than BBB by S&P and Baa by Moody's are
considered to be predominantly speculative and may be in default. Such ratings
reflect the greater possibility of adverse changes in the financial condition of
the issuers, or in general economic conditions, or both, or an unanticipated
rise in interest rates, may impact the ability of the issuer to make payments of
interest and principal. The inability (or perceived inability) of issuers to
make timely payments of interest and principal would likely make the values of
securities held by the Convertibles Fund more volatile and could limit the
Convertibles Fund's ability to sell its securities at prices approximating the
values the Convertibles Fund had placed on such securities. In the absence of a
liquid trading market for securities held by it, the Convertibles Fund at times
may be unable to establish the fair value of such securities. Finally the
rating assigned to a security by Moody's or S&P does not reflect an assessment
of the volatility of the security's market value or of the liquidity of an
investment in the security.
Murphy will seek to minimize the risks of investing in lower-rated securities
through careful investment analysis. When the Convertibles Fund invests in the
lower rating categories, this achievement of its investment objective is more
dependent on Murphy's investment analysis than would be the case if the
Convertibles Fund were investing in securities in the higher rating categories.
When Murphy deems it advisable for temporary defensive purposes, the
Convertibles Fund may invest up to 100% of its net assets in U.S. Government
securities, principally expected to be Treasury Bills, bank instruments,
commercial paper master notes or repurchase agreements. See "Principal
Investment Risks" for possible risks and the Statement of Additional Information
for a description of U.S. Government securities and repurchase agreements.
Additionally the Convertibles Fund may hedge some or all of its portfolio of
securities. See "Hedging Instruments." The Convertibles Fund also may leverage
its investments and lend its portfolio securities. See "Borrowing" and "Lending
Portfolio Securities" below. The Convertibles Fund may effect "short sales" of
securities to the same extent as the Biotechnology Fund. See "The Objective and
Basic Portfolio of the Biotechnology Fund."
PIA GLOBAL FUND
THE OBJECTIVE AND BASIC PORTFOLIO OF THE GLOBAL BOND FUND
The Global Bond Fund's investment objective is to provide a high level of
current income through investing in bonds denominated in U.S. dollars and other
currencies. (The Global Bond Fund considers a "bond" to mean any debt instrument
other than a money market debt instrument.) The Global Bond Fund may invest in a
broad range of fixed-income securities denominated in foreign currencies and
U.S. dollars, including bonds, notes, Mortgage-Backed Securities, asset-backed
securities, preferred stock (including convertible preferred stock), convertible
debt securities, structured notes and debt securities issued or guaranteed by
national, provincial, state or other governments with taxing authority or by
their agencies or by supranational entities. The Global Bond Fund may invest in
securities that pay interest on a fixed, variable, floating (including inverse
floating), contingent, in-kind or deferred basis. Under normal market
conditions, at least 65% of the total value of the Global Bond Fund's assets
will be invested in bonds (as defined above) denominated in foreign currencies
and U.S. dollars. Supranational entities include international organizations
designated or supported by governmental entities to promote economic
reconstruction or development, and international banking institutions and
related government agencies. Examples of supranational entities are the
International Bank for Reconstruction and Development (the World Bank), the
European Steel and Coal Community, the Asian Development Bank and the Inter-
American Development Bank.
The Global Bond Fund expects to emphasize foreign government and agency
securities, securities of U.S. companies denominated in foreign currencies, U.S.
Government and agency securities, Mortgage-Backed Securities, asset-backed
securities and securities of companies denominated in U.S. dollars. The Global
Bond Fund intends to spread investments broadly among countries. The Global Bond
Fund will normally include securities of no fewer than five different countries;
however, while maintaining investments in five countries, the Global Bond Fund
may invest a substantial portion of its assets in one or more of those five
countries. Investors should be aware that investing in Mortgage-Backed
Securities involves risks of fluctuation in yields and market prices and of
early prepayments on the underlying mortgages. See "The Objective and Basic
Portfolio of the Short-Term Government Fund." See "Foreign Securities" for a
description of the risks associated with investments in foreign securities.
When PIA deems it advisable for temporary defensive purposes, the Global Bond
Fund may invest up to 100% of its net assets in U.S. and non-dollar denominated
short-term money market instruments such as Treasury Bills, bank instruments,
commercial paper master notes and repurchase agreements.
The Global Bond Fund will invest in investment grade fixed-income securities,
i.e., securities which, at the date of investment, are rated within the four
highest grades as determined by Moody's (Aaa, Aa, A or Baa) or by S&P, Duff &
Phelps or IBAC (AAA, AA, A or BBB) or their respective equivalent ratings or, if
not rated, judged by PIA to be of equivalent credit quality to securities so
rated. Securities rated Baa by Moody's or BBB by S&P, Duff & Phelps or IBAC and
unrated securities of equivalent credit quality are considered medium grade
obligations with speculative characteristics. Adverse changes in economic
conditions or other circumstances are more likely to weaken the issuer's
capacity to pay interest and repay principal on these securities than is the
case for issuers of higher rated securities.
The Global Bond Fund anticipates that the average dollar-weighted rated
credit quality of the securities in its portfolio will be Aa or AA, according to
Moody's, S&P, Duff & Phelps or IBAC ratings, respectively, or comparable credit
quality as determined by PIA. In the case of a security that is rated
differently by the rating services, the higher rating is used in computing the
Global Bond Fund's average dollar-weighted credit quality. In the event that the
rating on a security held in the Global Bond Fund's portfolio is downgraded by a
rating service, such action will be considered by PIA in its evaluation of the
overall investment merits of that security, but will not necessarily result in
the sale of the security. However the Global Bond Fund will not hold more than
5% of its net assets in securities rated less than Baa by Moody's or BBB by S&P,
Duff & Phelps or IBAC. See "The Objective and Basic Portfolio of the
Convertibles Fund (formerly Growth & Income Fund)" for a discussion of the risks
associated with such securities. In determining whether securities are of
equivalent credit quality, PIA may take into account, but will not rely entirely
on, ratings assigned by foreign rating agencies. In the case of unrated
sovereign, subnational and sovereign related debt of foreign countries, PIA may
take into account, but will not rely entirely on, the ratings assigned to the
issuers of such securities.
In pursuing the Global Bond Fund's investment objective, PIA intends to
emphasize intermediate-term economic fundamentals relating to various countries
in the international economy, rather than evaluate day-to-day fluctuations in
particular currency and bond markets. Credit analysis of the issuers of the
particular securities will also be less important than macroeconomic
considerations. PIA will review the economic conditions and prospects relating
to various countries in the international economy and evaluate the available
yield differentials with a view toward maximizing total return.
The Global Bond Fund may purchase securities on a when-issued basis or a
forward commitment basis to the same extent as the Short-Term Government Fund.
See "The Objective and Basic Portfolio of the Short-Term Government Fund." The
Global Bond Fund may hedge some or all of its portfolio securities. See "Hedging
Instruments." The Global Bond Fund also may leverage its investments and lend
its portfolio securities. See "Borrowing" and "Lending Portfolio Securities,"
below.
INVESTMENT PRACTICES AND RISKS
BORROWING
From time to time the Short-Term Government Fund, the Biotechnology Fund, the
Technology Fund, the Convertibles Fund and the Global Bond Fund may increase
their ownership of securities by borrowing on a secured or unsecured basis at
fixed and floating rates of interest and investing the borrowed funds. It is not
anticipated that any of such Funds will use its borrowing power to an extent
greater than 25% of the value of its assets. Borrowings will be made only from
banks and only to the extent that the value of the assets of the Fund in
question, less its liabilities other than borrowings, is equal to at least 300%
of all borrowings, including the proposed borrowing. If the value of the assets
of the Fund in question so computed should fail to meet the 300% asset coverage
requirement, the Fund is required within three days to reduce its bank debt to
the extent necessary to meet such 300% coverage. Since substantially all of the
assets of the Short-Term Government Fund, the Biotechnology Fund, the Technology
Fund, the Convertibles Fund and the Global Bond Fund fluctuate in value, but
borrowing obligations are fixed, the net asset value per share of such Funds
will correspondingly tend to increase and decrease in value more than otherwise
would be the case. This speculative factor is known as "leverage."
LENDING PORTFOLIO SECURITIES
Each of the Short-Term Government Fund, the Gold Fund, the Biotechnology Fund,
the Technology Fund, the Convertibles Fund and the Global Bond Fund may, to
increase its income, lend its securities on a short- or long-term basis to
brokers, dealers and financial institutions if (i) the loan is collateralized in
accordance with applicable regulatory guidelines (the "Guidelines") and (ii)
after any loan, the value of the securities loaned does not exceed 25% of the
value of its total assets. Under the present Guidelines (which are subject to
change) the loan collateral must be, on each business day, at least equal to the
value of the loaned securities and must consist of cash, bank letters of credit
or U.S. Government securities. To be acceptable as collateral, a letter of
credit must obligate a bank to pay amounts demanded by the Fund in question if
the demand meets the terms of the letter. Such terms and the issuing bank would
have to be satisfactory to the Fund in question. Any loan might be secured by
any one or more of the three types of collateral.
The Fund in question receives amounts equal to the interest or other
distributions on loaned securities and also receives one or more of the
negotiated loan fees, interest on securities used as collateral or interest on
the securities purchased with such collateral, either of which type interest may
be shared with the borrower. The Short-Term Government Fund, the Gold Fund, the
Biotechnology Fund, the Technology Fund, the Convertibles Fund and the Global
Bond Fund may also pay reasonable finder's, custodian's and administrative fees
but only to persons not affiliated with the Trust. The terms of the loans will
meet certain tests under the Code and permit the Short-Term Government Fund, the
Gold Fund, the Biotechnology Fund, the Technology Fund, the Convertibles Fund
and the Global Bond Fund to terminate the loan and thus reacquire the loaned
securities on three days notice.
FOREIGN SECURITIES
From time to time a significant portion of the investments of the Gold Fund, the
Biotechnology Fund, the Technology Fund, the Convertibles Fund and the Global
Bond Fund and up to 10% of the total assets of the Equity Fund and up to 35% of
the total assets of the Government Fund may be in the securities of foreign
issuers. There are risks in investing in foreign securities. Foreign economies
may differ from the U.S. economy; individual foreign companies may differ from
domestic companies in the same industry; foreign currencies may be stronger or
weaker than the U.S. dollar.
An investment may be affected by changes in currency rates and in exchange
control regulations, and the Gold Fund, the Equity Fund, the Government Fund,
the Biotechnology Fund, the Technology Fund, the Convertibles Fund and the
Global Bond Fund may incur transaction costs in exchanging currencies. For
example, at times when the assets of a Fund are invested primarily in securities
denominated in foreign currencies, investors can expect that their net asset
values per share will tend to increase when the value of U.S. dollars is
decreasing against such currencies. Conversely a tendency toward a decline in
net asset values per share can be expected when the value of U.S. dollars is
increasing against such currencies.
Foreign companies are frequently not subject to accounting and financial
reporting standards applicable to domestic companies, and there may be less
information available about foreign issuers. Foreign stock markets have
substantially less volume than the New York Stock Exchange, and securities of
foreign issuers are generally less liquid and more volatile than those of
comparable domestic issuers. There is frequently less government regulation of
exchanges, broker-dealers and issuers than in the United States. Brokerage
commissions in foreign countries are generally fixed, and other transactions
costs related to securities exchanges are generally higher than in the United
States. In addition, investments in foreign countries are subject to the
possibility of expropriation, confiscatory taxation, political or social
instability or diplomatic developments that could adversely affect the value of
those investments.
Most foreign securities owned by any of the Funds are held by foreign
subcustodians that satisfy certain eligibility requirements. However, foreign
subcustodian arrangements are significantly more expensive than domestic
custody. In addition, foreign settlement of securities transactions is subject
to local law and custom that is not, generally, as well established or as
reliable as U.S. regulation and custom applicable to settlements of securities
transactions and, accordingly, there is generally perceived to be a greater risk
of loss in connection with securities transactions in many foreign countries.
The Gold Fund, the Biotechnology Fund, the Technology Fund, the Convertibles
Fund and the Global Bond Fund may invest in countries with emerging economies or
securities markets ("Emerging Markets"). Investment in Emerging Markets involves
risks in addition to those generally associated with investments in foreign
securities. Political and economic structures in many Emerging Markets may be
undergoing significant evolution and rapid development, and such countries may
lack the social, political and economic stability characteristics of more
developed countries. As a result, the risks described above relating to
investments in foreign securities, including the risks of nationalization or
expropriation of assets, may be heightened. In addition, unanticipated political
or social developments may affect the values of a Fund's investments and the
availability to a Fund of additional investments in such Emerging Markets. The
small size and inexperience of the securities markets in certain Emerging
Markets and the limited volume of trading in securities in those markets may
make a Fund's investments in such countries less liquid and more volatile than
investments in countries with more developed securities markets (such as the
U.S., Japan and most Western European countries).
HEDGING
Hedging may be used in an attempt to (i) protect against declines or possible
declines in the market values of securities held in a Fund's portfolio ("short
hedging") or (ii) establish a position in the securities markets as a substitute
for purchase of individual securities ("long hedging"). A Fund so authorized may
engage in short hedging in an attempt to protect that Fund's value against
anticipated downward trends in the securities markets or engage in long hedging
as a substitute for the purchase of securities, which may then be purchased in
an orderly fashion. It is expected that when a Fund is engaging in long hedging,
it would, in the normal course, purchase securities and terminate the hedging
position, but under unusual market conditions such a hedging position may be
terminated without the corresponding purchase of securities.
HEDGING INSTRUMENTS
The various hedging instruments which the Funds may use are discussed below.
These instruments may be used only for hedging and not for speculative purposes.
Additionally the Gold Fund may write covered call and put options to generate
income for liquidity purposes. The Statement of Additional Information contains
further information as to the characteristics of, and the risks of transactions
in, each of these instruments.
Stock Index Futures. The Equity Fund, the Biotechnology Fund, the Technology
Fund, the Convertibles Fund and the Global Bond Fund (but not the Government
Fund, the Gold Fund or the Short-Term Government Fund) may buy and sell futures
contracts on stock indices ("Stock Index Futures"). A stock index, which cannot
be purchased or sold directly, assigns relative values to the common stocks
included in the index, and the index fluctuates with the changes in the market
values of these common stocks. When a Fund buys a Stock Index Future it agrees
to take delivery of an amount of cash equal to a specified dollar amount times
the difference between the stock index value at the close of the last trading
day of the Stock Index Future and the price at which the Stock Index Future was
originally struck. No physical delivery of the underlying stocks in the index is
made. When a Fund sells a Stock Index Future, it agrees to deliver such an
amount of cash.
Call Options. All of the Funds may purchase call options ("calls") and write
(i.e., sell) calls but only if (i) the investments to which the call relates
(the "related investments") are (a) common stocks or other securities that have
equity characteristics ("equities") (except that the Government Fund and the
Short-Term Government Fund may not purchase and write calls on equities), (b)
stock indices (except that the Government Fund and the Short-Term Government
Fund may not purchase and write calls on stock indices), (c) Stock Index Futures
(except that the Gold Fund, the Government Fund and the Short-Term Government
Fund may not purchase or write calls on Stock Index Futures), (d) debt
securities (with respect to only the Short-Term Government Fund, the
Convertibles Fund and the Global Bond Fund) or (e) futures contracts on debt
securities (with respect to only the Short-Term Government Fund, the Government
Fund, the Convertibles Fund and the Global Bond Fund); (ii) in the case of calls
written by any of such Funds, such calls are "covered"; and (iii) the calls are
listed on a domestic securities or commodities exchange or quoted on the
automatic quotation system of the National Association of Securities Dealers,
Inc. ("NASDAQ"). For a call to be "covered," either (i) the Fund in question
must own the underlying security or futures contract or have an absolute and
immediate right to acquire that security or futures contract without payment of
additional cash consideration, or for an additional consideration held as set
forth in (ii), upon conversion or exchange of other securities held in its
portfolio; or (ii) that Fund must maintain in a segregated account cash or other
liquid securities adequate to purchase the security or futures contract, in each
case until the Fund enters into a closing purchase transaction as to that call.
Additionally calls written by the Gold Fund are deemed to be covered if it holds
on a share-for-share basis a call on the same related investment as the call
written where the exercise price of the call held is either equal to or less
than the exercise price of the call written or, if greater, the marked-to-market
excess is maintained in a segregated account in cash or other liquid securities.
The above limitations on calls the Funds may write or purchase are fundamental
policies, i.e., rules which may not be changed unless the shareholders of the
Fund in question vote to change them.
Put Options. All of the Funds may purchase put options ("puts") but only if (i)
the investments to which the put relates (the "related investments") are (a)
equities (except that the Government Fund and the Short-Term Government Fund may
not purchase put options on equities), (b) stock indices (except that the
Government Fund and the Short-Term Government Fund may not purchase put options
on stock indices), (c) Stock Index Futures (except that the Gold Fund, the
Government Fund and the Short-Term Government Fund may not purchase puts on
Stock Index Futures), (d) debt securities (with respect to only the Short-Term
Government Fund, the Convertibles Fund and the Global Bond Fund) or (e) futures
contracts on debt securities (with respect to only the Short-Term Government
Fund, the Government Fund, the Convertibles Fund and the Global Bond Fund); and
(ii) the puts are listed on a domestic securities or commodities exchange or
quoted on NASDAQ. The Equity Fund, the Biotechnology Fund, the Government Fund
and the Technology Fund may not write puts. The puts which the Equity Fund and
the Biotechnology Fund purchase on equities must be "protective," i.e., the Fund
in question must own the related investments. The Gold Fund may write covered
puts on (a) equities and (b) stock indices. For a put to be covered the Gold
Fund must (i) maintain in a segregated account cash or other liquid securities
equal to the option price; or (ii) hold on a share-for-share basis a put on the
same security as the put written where the exercise price of the put held is
either equal to or greater than the exercise price of the put written or, if
less, the marked-to-market deficit is maintained in a segregated account in cash
or other liquid securities. Each of the Short-Term Government Fund, the
Convertibles Fund and the Global Bond Fund may write covered puts on (a)
equities (the Convertibles Fund and the Global Bond Fund only), (b) stock
indices (the Convertibles Fund and the Global Bond Fund only), (c) Stock Index
Futures (the Convertibles Fund and the Global Bond Fund only), (d) debt
securities and (e) futures contracts on debt securities. For a put to be
covered, the Fund must maintain in a segregated account cash or other liquid
securities equal to the option price. These limitations on puts are fundamental
policies.
Debt Futures. The Government Fund, the Short-Term Government Fund, the
Convertibles Fund and the Global Bond Fund may buy and sell futures contracts on
debt securities ("Debt Futures"). When a Fund buys a Debt Future, it agrees to
take delivery of a specific type of debt security at a specific future date for
a fixed price; when it sells a Debt Future, it agrees to deliver a specific type
of debt security at a specific future date for a fixed price. Either obligation
may be satisfied by the actual taking, delivering or entering into an offsetting
Debt Future to close out the futures position. The above limitations are
fundamental policies; i.e., rules which may not be changed until the
shareholders of the Fund in question vote to change them.
Foreign Currency Transactions. Each of the Gold Fund, the Government Fund, the
Biotechnology Fund, the Technology Fund, the Convertibles Fund and the Global
Bond Fund may engage in purchasing and selling foreign currency and foreign
currency forward contracts to protect against uncertainty in the level of
futures currency exchange rates. The Global Bond Fund may also engage in foreign
currency options and foreign currency futures contracts for similar purposes.
Generally, the Funds may engage in both "transaction hedging" and "position
hedging." When it engages in transaction hedging, a Fund enters into foreign
currency transactions with respect to specific receivables or payables,
generally arising in connection with the purchase or sale of portfolio
securities. A Fund will engage in transaction hedging when it desires to "lock
in" the U.S. dollar price of a security it has agreed to purchase or sell, or
the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. By transaction hedging a Fund will attempt to protect itself against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the applicable foreign currency during the period between the
date on which the security is purchased or sold, or on which the dividend or
interest payment is earned, and the date on which such payments are made or
received. When it engages in position hedging, a Fund enters into foreign
currency exchange transactions to protect against a decline in the values of the
foreign currencies in which its portfolio securities are denominated (or an
increase in the value of currency for securities which a Fund expects to
purchase).
PORTFOLIO TURNOVER
See the last footnote to the Financial Highlights table above for the definition
of a portfolio turnover rate and the caption "Portfolio turnover rate" in that
table for the turnover rates of the Funds. The Global Bond Fund anticipates that
its portfolio turnover rate generally will not exceed 200%. Murphy anticipates
the portfolio turnover rate for the Biotechnology Fund and the Convertibles Fund
for the fiscal year ending November 30, 1997 will approximate 150% and
thereafter generally not exceed 50%. High portfolio turnover (i.e., over 100%)
may involve correspondingly greater brokerage commissions and other transaction
costs, which are borne directly by the Funds. In addition, high portfolio
turnover may result in increased short-term capital gains which, when
distributed to shareholders, are treated as ordinary income. The portfolio
turnover rate of each of the Funds may vary significantly from year to year as a
result of the presence or absence of the defensive investment positions taken by
a Fund's investment adviser.
PRINCIPAL INVESTMENT RISKS
Puts, Calls and Futures. A Fund's use of puts, calls and futures contracts
involves investment risks and transaction costs to which it would not be subject
absent the use of these hedging instruments. In particular the loss from
investing in futures contracts and writing options is potentially unlimited.
Other risks include the possibility that a liquid secondary market may not exist
at a time when a Fund may wish to close out an option or futures position or can
only do so if it incurs substantial losses. The writing of put and call options
may result in losses to a Fund, force the purchase or sale, respectively, of
portfolio securities at inopportune times or for prices higher than (in the case
of purchases due to the exercise of put options) or lower than (in the case of
sales due to the exercise of call options) current market values, limit the
amount of appreciation a Fund can realize on its investments or cause a Fund to
hold a security it might otherwise sell. The use of currency transactions can
result in a Fund incurring losses as a result of a number of factors including
the imposition of exchange controls, suspension of settlements, or the inability
to deliver or receive a specified currency. The variable degree of correlation
between price movements of futures contracts and price movements in a Fund's
related portfolio position creates the possibility that losses on the hedging
instruments may be greater than gains in the value of a Fund's portfolio
position. Although the use of hedging instruments may minimize losses, they tend
to limit potential gains. The use of hedging instruments may increase the
volatility of a Fund's net asset value.
Repurchase Agreements. Each Fund may enter into repurchase agreements, which
basically involve the purchase by that Fund of debt securities and their resale
at an agreed-upon price. While each Fund intends to be fully "collateralized" as
to such agreements, if the person obligated to repurchase from that Fund
defaults or enters bankruptcy, there may be possible delays and expenses in
liquidating the securities, decline in their value and loss of interest. See the
Statement of Additional Information under "Repurchase Agreements."
U.S. Government Securities. The U.S. Government securities which each of the
Funds may purchase may involve obligations of agencies and instrumentalities
which are not backed by the full faith and credit of the United States; see the
Statement of Additional Information under "U.S. Government Securities." In such
cases, a Fund must look principally to the agency or instrumentality issuing or
guaranteeing the obligation for ultimate repayment and may not be able to assert
a claim against the United States itself in the event the agency or
instrumentality does not meet its commitment.
Mortgage-Backed Securities. A Fund's investment in certain Mortgage-Backed
Securities, such as interest only SMBS, may be extremely sensitive to changes in
prepayments and interest rates. Even though such securities have been guaranteed
by an agency or instrumentality of the U.S. Government, under certain interest
rate or prepayment rate scenarios, the Fund may fail to fully recover its
investment in such securities. See the discussion of Mortgage-Backed Securities
under "The Objective and Basic Portfolio of the Short-Term Government Fund."
In general, changes in both prepayment rates and interest rates will change
the yield on Mortgage-Backed Securities. The rate of principal prepayments with
respect to ARMs has fluctuated in recent years. As is the case with fixed rate
mortgage loans, ARMs may be subject to a greater rate of principal prepayments
in a declining interest rate environment. For example, if prevailing interest
rates fall significantly, ARMs could be subject to higher prepayment rates than
if prevailing interest rates remain constant because the availability of fixed
rate mortgage loans at competitive interest rates may encourage mortgagors to
refinance their ARMs to "lock-in" a lower fixed interest rate. Conversely, if
prevailing interest rates rise significantly, ARMs may prepay at lower rates
than if prevailing rates remain at or below those in effect at the time such
ARMs were originated. As with fixed rate mortgages, there can be no certainty as
to the rate of prepayments on the ARMs in either stable or changing interest
rate environments. In addition, there can be no certainty as to whether
increases in the principal balances of the ARMs due to the addition of deferred
interest may result in a default rate higher than that on ARMs that do not
provide for negative amortization. Other factors affecting prepayment of ARMs
include changes in mortgagors' housing needs, job transfers, unemployment,
mortgagors' net equity in the mortgage properties and servicing decisions.
A Fund's reinvestment of principal payments and prepayments received on a
mortgage pass-through security may be made at rates higher or lower than the
rate payable on such security, thus affecting the return realized by the Fund.
In addition, the receipt of interest payments monthly rather than semi-annually
by a Fund has a compounding effect that may increase the yield to the Fund
relative to debt obligations that pay interest semi-annually. Due to these
factors, Mortgage-Backed Securities may also be less effective than U.S.
Treasury securities of similar maturity at maintaining yields during periods of
changing interest rates. Prepayments may have a disproportionate effect on
certain Mortgage-Backed Securities such as SMBS and certain other multiple class
pass-through securities that purchase Mortgage-Backed Securities at a premium or
at a discount.
The market value of adjustable rate Mortgage-Backed Securities may be
adversely affected if interest rates increase faster than the rates of interest
payable on such securities or by the adjustable rate mortgage loans underlying
such securities. Furthermore, adjustable rate Mortgage-Backed Securities or the
mortgage loans underlying such securities may contain provisions limiting the
amount by which rates may be adjusted upward and downward and may limit the
amount by which monthly payments may be increased or decreased to accommodate
upward and downward adjustments in interest rates.
Certain adjustable rate mortgage loans may provide for periodic adjustments
of scheduled payments in order to fully amortize the mortgage loan by its
stated maturity. Other adjustable rate mortgage loans may permit such stated
maturity to be extended or shortened in accordance with the portion of each
payment that is applied to interest in accordance with the periodic interest
rate adjustments.
Although having less risk of decline during periods of rising interest rates,
adjustable rate Mortgage-Backed Securities have less potential for capital
appreciation than fixed rate Mortgage-Backed Securities because their coupon
rates will decline in response to market interest rate declines. The market
value of fixed rate Mortgage-Backed Securities may be adversely affected as a
result of increases in interest rates and, because of the risk of principal
prepayments, may benefit less than other fixed rate securities of similar
maturity from declining interest rates. Finally, to the extent Mortgage-Backed
Securities are purchased at a premium, mortgage foreclosures and unscheduled
principal prepayments may result in some loss of a Fund's principal investment
to the extent of the premium paid. On the other hand, if the securities are
purchased at a discount, both a scheduled payment of principal and an
unscheduled prepayment of principal will increase current and total returns and
will accelerate the recognition of income.
General Risks. Other risks are that PIA, Murphy or Orrell, as the case may be,
would be incorrect in its expectations as to the extent of various movements in
securities prices or the time within which the movements take place.
PRINCIPAL INVESTMENT RESTRICTIONS
The Trust is subject to certain investment restrictions which are fundamental
policies that cannot be changed without the approval of the holders of a
"majority," as defined in the Investment Company Act of 1940 (the "1940 Act"),
of the shares of the Fund as to which the policy change is being sought. Each
Fund's investment objective is such a policy, as are the policies as to hedging
instruments indicated above as being fundamental policies. Among the Trust's
other restrictions, (i) none of the Funds may purchase more than 10% of the
outstanding voting securities, or of any class of securities, of any one issuer,
(ii) each of the Gold Fund, the Equity Fund, the Biotechnology Fund, the
Convertibles Fund, the Global Bond Fund and the Technology Fund may not, with
respect to 50% of its assets, invest more than 5% of its total assets in the
securities of any one issuer (other than U.S. Government securities), (iii) the
Equity Fund, the Technology Fund, the Short-Term Government Fund, the Government
Fund and the Convertibles Fund may not purchase any security if as a result 25%
or more of its total assets would be invested in securities of issuers in a
single industry, and (iv) the Short-Term Government Fund, the Government Fund
and the Equity Fund may not purchase any security restricted as to disposition
under federal securities laws. The Government Fund and the Short-Term Government
Fund are "diversified" as defined in the 1940 Act due to their policies of
investing primarily in a diversified portfolio of common stocks and U.S.
Government securities, respectively. The Gold Fund, the Equity Fund, the
Biotechnology Fund, the Convertibles Fund, the Global Bond Fund and the
Technology Fund are "non-diversified" under the 1940 Act but each of such Funds
must meet a diversification test as to 50% of its assets under the Code.
Additional information about, and a more detailed statement of, the Trust's
investment restrictions is contained in the Statement of Additional Information.
In addition, due to requirements of the Commodities Futures Trading
Commission, the Funds when using Futures or options on them will purchase or
sell Futures, or options on them, only for hedging purposes (except that
nonhedging positions may be established if the initial margin and premiums
required to establish such positions do not exceed 5% of a Fund's net assets),
and otherwise within the limits of a Rule of that Commission.
As indicated above the Funds will, in a number of situations, maintain in a
segregated account or accounts with its custodian cash or other liquid assets in
the amounts indicated. Maintenance of such segregated accounts reflect
regulatory restrictions on the Trust and are not fundamental policies; that is,
such policies could change if the regulatory requirements change without any
vote of shareholders as to such change.
As discussed in the Statement of Additional Information, each Fund may,
within limits, engage in short sales but, except for the Biotechnology Fund, the
Technology Fund and the Convertibles Fund, only those which are "against the
box." Short sales against the box are a method of locking in unrealized capital
gains without current recognition of such gains for tax purposes without
additional costs.
MANAGEMENT
The Trust's Board of Trustees decides on matters of general policy and reviews
the activities of PIA, Murphy, Orrell and Camborne, the Administrator and the
Distributor, and the Trust's officers conduct and supervise the daily business
operations of the Trust.
Pacific Income Advisers, Inc. ("PIA"), 1299 Ocean Avenue, Suite 210, Santa
Monica, CA 90401, acts as investment adviser to the Government Fund, the Equity
Fund, the Short-Term Government Fund and the Global Bond Fund, subject to the
control of the Trust's Board of Trustees, and supervises and arranges the
purchase and sale of securities held in the portfolio of the Government Fund,
the Equity Fund, the Short-Term Government Fund and the Global Bond Fund, and
their use of hedging instruments. The organizational arrangements of PIA are
such that all investment decisions are made by a committee and no persons are
primarily responsible for making recommendations to that committee. Joseph Lloyd
McAdams, Jr. and Heather U. Baines own all of the outstanding stock of PIA.
Camborne Advisors, Inc. ("Camborne"), 10670 N. Central Expressway, Suite 405,
Dallas, Texas 75231 acts as sub-adviser to the Government Fund. As such Camborne
furnishes regular advice to PIA regarding those economic and market factors
which influence the decision of PIA as to the securities and hedging instruments
to be purchased and sold for the Government Fund. Camborne will also from time
to time provide advice as to transactions in specific securities. Although
Camborne will provide investment advice to PIA, PIA will make the final decision
as to the securities and hedging instruments to be purchased and sold for the
Government Fund. Camborne is a privately held corporation which is wholly-owned
by Camborne Investment Corporation. Camborne is a newly formed investment
advisory firm with no prior experience in managing the investment portfolio of a
registered investment company.
Murphy Investment Management, Inc. ("Murphy"), 2830 North Cabrillo Highway,
Half Moon Bay, CA 94019 acts as investment adviser to the Technology Fund, the
Biotechnology Fund and the Convertibles Fund, subject to the control of the
Trust's Board of Trustees, and supervises and arranges the purchase and sale of
securities held in the portfolio of the Technology Fund, the Biotechnology Fund
and the Convertibles Fund and their use of hedging instruments. John Michael
Murphy, the President of Murphy, is primarily responsible for making these
decisions. Mr. Murphy has been a portfolio manager since 1973 and a securities
analyst since 1970. He has been the president of an investment newsletter
publisher since 1981. John Michael Murphy and Gaye Elizabeth Morgenthaler own
all of the outstanding stock of Murphy.
Orrell Capital Management, a division of Orrell and Company, Inc. ("Orrell"),
120 Montgomery Street, Suite 1230, San Francisco, CA 94104 acts as investment
adviser to the Gold Fund, subject to the control of the Trust's Board of
Trustees, and supervises and arranges the purchase and sale of securities held
in the portfolio of the Gold Fund and its use of hedging instruments. Gregory M.
Orrell, the President of Orrell, is primarily responsible for making these
decisions. Mr. Orrell has been President of Orrell since 1984.
PIA became the investment adviser to the Government Fund on October 31, 1992,
to the Short-Term Government Fund on March 31, 1994, to the Equity Fund on
December 13, 1996 and to the Global Bond Fund on March 31, 1997. Prior to
December 13, 1996, Monitrend Investment Management, Inc. ("MIMI") was investment
adviser to the Equity Fund and Robert L Bender, Inc. was sub-adviser to the
Equity Fund and prior to November 1, 1992 MIMI was investment adviser to the
Government Fund. Camborne became sub-adviser to the Government Fund on December
13, 1996. Murphy became investment adviser to the Technology Fund on December
13, 1996, the Biotechnology Fund on December 20, 1996 and the Convertibles Fund
on December 31, 1996. Prior thereto MIMI was investment adviser to the
Biotechnology Fund and the Technology Fund, MidCap Associates, Inc. was
investment adviser to the Convertibles Fund, Murphy was sub-adviser to the
Technology Fund and MIMI was sub-adviser to the Convertibles Fund. Prior to
December 13, 1996 MIMI was investment adviser to the Gold Fund.
Under the Agreements applicable to the Government Fund, the Trust pays PIA
fees, computed daily and payable monthly, at an annual rate of 0.40% of the
Government Fund's daily net assets; and PIA pays Camborne a fee computed daily
and paid monthly at an annual rate of 0.20% of the Government Fund's daily net
assets.
Under the Investment Advisory Agreement applicable to the Convertibles Fund,
the Trust pays Murphy total fees, computed daily and payable monthly, at the
following annual rates based on daily net assets:
ASSETS FEE RATE
- ------ --------
0 to $150 million 0.625%
$150 million to $250 million 0.50%
Over $250 million 0.375%
Under the Investment Advisory Agreement applicable to the Gold Fund, the
Trust pays Orrell fees, computed daily and payable monthly, at the following
annual rates based on daily net assets:
ASSETS FEE RATE
- ------ --------
0 to $50 million 1%
$50 million to $75 million 0.875%
$75 million to $100 million 0.75%
$100 million to $150 million 0.625%
$150 million to $250 million 0.50%
Over $250 million 0.375%
Under the Investment Advisory Agreement applicable to the Equity Fund, the
Trust pays PIA a fee, computed daily and payable monthly, at the following
annual rate based on daily net assets:
ASSETS FEE RATE
- ------ --------
0 to $50 million 1%
$50 million to $75 million 0.875%
$75 million to $100 million 0.75%
$100 million to $150 million 0.625%
$150 million to $250 million 0.50%
Over $250 million 0.375%
Under the Investment Advisory Agreement applicable to the Biotechnology Fund,
the Trust pays Murphy a fee, computed daily and payable monthly, at the annual
rate of 1.00% of the Biotechnology Fund's daily net assets. (Prior to December
20, 1996 the investment advisory fee payable to MIMI was computed daily and
payable monthly at the annual rate of 1.25% of daily net assets.) Under the
Investment Advisory Agreement applicable to the Technology Fund, the Trust pays
Murphy a fee, computed daily and payable monthly, at the annual rate of 1% of
the Technology Fund's daily net assets. Under the Investment Advisory Agreement
applicable to the Short-Term Government Fund, the Trust pays PIA a fee, computed
daily and payable monthly, at the annual rate of 0.20% of the Short-Term
Government Fund's daily net assets. (Prior to December 13, 1996, the investment
advisory fee payable to PIA was computed daily and paid monthly at the annual
rate of 0.35% of daily net assets.) Under the Investment Advisory Agreement
applicable to the Global Bond Fund, the Trust pays PIA a fee compounded daily
and paid monthly at the annual rate of 0.40% of the Global Bond Fund's daily net
assets.
In addition to the fees payable to PIA, Murphy and Orrell, the Trust, as to
each Fund, is responsible for each Fund's operating expenses, including: (i)
interest and taxes; (ii) brokerage commissions; (iii) insurance premiums; (iv)
compensation and expenses of Trustees other than those affiliated with PIA or
Murphy; (v) legal and audit expenses; (vi) fees and expenses of the Trust's
Administrator, custodian, shareholder servicing or transfer agent and accounting
services agent; (vii) expenses incident to the issuance of its shares, including
issuance on the payment of, or reinvestment of, dividends; (viii) fees and
expenses incident to the registration under federal or state securities laws of
the Trust or its shares; (ix) expenses of preparing, printing and mailing
reports and notices and proxy material to shareholders of the Trust; (x) all
other expenses incidental to holding meetings of the Trust's shareholders; (xi)
dues or assessments of or contributions to the Investment Company Institute or
any successor; (xii) such non-recurring expenses as may arise, including
litigation affecting the Trust and the legal obligations which the Trust may
have to indemnify its officers and Trustees with respect thereto; and (xiii) all
expenses which the Trust agrees to bear in any distribution agreement or in any
plan adopted by the Trust pursuant to Rule 12b-1 under the 1940 Act. See the
Statement of Additional Information for the expense limitation in the Agreements
and their provisions as to the allocation of portfolio transactions, including
provisions which authorize PIA, Murphy and Orrell to consider sales of shares as
a factor in the selection of brokers and dealers to execute portfolio
transactions and which authorize PIA, Murphy and Orrell to direct the Funds to
pay brokerage commission to Syndicated Capital, Inc., the Distributor of each of
the Funds and an affiliate of PIA.
THE ADMINISTRATOR
American Data Services, Inc., a corporation organized under the laws of the
State of New York, administers the day to day operations of each Fund and serves
as fund accountant to each Fund, subject to the overall supervision of the
Trust's Board of Trustees. The Administrator maintains each Fund's books and
records, other than those records maintained by the Fund's custodian, oversees
the Trust's insurance relationships, participates in the preparation of tax
returns, proxy statements and reports, prepares documents necessary for the
maintenance of the Trust's registration with the various states, responds or
oversees the response to communications from shareholders and broker-dealers,
oversees relationships between the Trust and its custodian, determines each
Fund's net asset value and directs any of the Administrator's directors,
officers or employees who may be elected as officers of the Trust to serve as
such. For its services as administrator and fund accountant, the Administrator
is paid a fee, computed daily and paid monthly, by each Fund at the rate of
0.10% per year of the average daily net assets of that Fund, subject to a
minimum monthly fee of approximately $1,072 per Fund.
See the Statement of Additional Information for more information as to the
Trust's Board of Trustees, officers and principal shareholders, PIA, Murphy,
Orrell, Camborne, and the Administrator.
HOW TO PURCHASE SHARES
Syndicated Capital, Inc., 1299 Ocean Avenue, Suite 210, Santa Monica, CA 90401,
is the Distributor of each Fund's shares. Shares of each Fund may be purchased
through brokers or dealers ("selected dealers") who have a sales agreement with
the Distributor at the offering price next determined after receipt of an order
in proper form; see "Net Asset Value." In certain circumstances, selected
dealers may be deemed "underwriters," in the opinion of the staff of the
Securities and Exchange Commission, for the purposes of the Securities Act of
1933. The offering price is the net asset value per share of the Fund the shares
of which are being purchased, plus a sales charge. The Short-Term Government
Fund, the Convertibles Fund, the Biotechnology Fund, the Technology Fund and the
Global Bond Fund do not impose a sales charge. For these Funds, the offering
price is equal to the net asset value per share.
GOLD FUND, GOVERNMENT FUND AND EQUITY FUND PURCHASES
The following table shows the amount of the sales charge to a "person" (defined
below) together with the dealer discount paid to dealers and agency commissions
paid to brokers (collectively, the "commissions") with respect to purchases of
the Gold Fund, the Government Fund and the Equity Fund:
SALES CHARGE AS COMMISSIONS
PERCENTAGE OF AS
OFFERING AMOUNT PERCENTAGE OF
AMOUNT OF PURCHASE PRICE INVESTED OFFERING PRICE
- ------------------ ------- -------- --------------
Less than $100,000 4.50% 4.71% 4.00%
$100,000 to $249,999 3.00 3.09 2.75
$250,000 to $499,999 2.50 2.56 2.25
$500,000 to $999,999 2.00 2.04 1.75
$1,000,000 or more 0 0 0
In addition to the commissions shown in the table above, the Distributor may
from time to time pay a bonus or other incentive to dealers which employ a sales
representative who sells a minimum dollar amount of shares of a Fund during a
specific time. Such bonus or other incentive may take the form of payment for
travel expenses, including lodging, incurred in connection with trips taken by
qualifying registered representatives and members of their families to places
within or without the United States. In no event will the value of such bonus or
other incentive paid by the Distributor to the dealer exceed the difference
between the sales charges and the concessions to dealers in respect of shares of
the Fund and/or such other funds sold by the qualifying registered
representative of such dealer.
Reduced sales charges apply to purchases of shares of the Gold Fund, the
Government Fund and the Equity Fund made at any one time by a "person," which
means an individual, or an individual, his or her spouse and children under the
age of twenty one, purchasing securities for his, her or their own accounts, or
a trustee or other fiduciary purchasing securities for a single trust estate or
fiduciary account. In addition, purchases of shares of the Gold Fund, the
Government Fund and the Equity Fund made during a thirteen month period pursuant
to a written Statement of Intent are also eligible for a reduced sales charge.
Reduced sales charges are also applicable to subsequent purchases by a "person,"
based on the aggregate of the amount currently being invested and the value at
offering price of shares owned at the time of the subsequent investment.
Information about a Statement of Intent as well as the terms of reduced sales
charges for fiduciaries is available in the Statement of Additional Information
or from the Distributor.
Investors may purchase shares of the Gold Fund, the Government Fund and the
Equity Fund at net asset value to the extent that this investment represents the
proceeds from the redemption, within the previous sixty days, of shares or
interests (the purchase price of which shares included a sales charge) of
another mutual fund or a commodity pool. When making a purchase at net asset
value pursuant to this provision, the investor should forward to the Trust's
transfer agent either (i) the redemption check representing the proceeds of the
shares redeemed, endorsed to the order of the Trust (i.e., Monterey Mutual Fund)
and indicating which Fund's shares are being purchased, or (ii) a copy of the
confirmation from the other fund, showing the redemption transaction.
Former shareholders of the Gold Fund, the Government Fund and the Equity Fund
may purchase shares of the Gold Fund, the Government Fund and the Equity Fund at
net asset value up to an amount not exceeding their prior investment in all of
such Funds. When making a purchase at net asset value pursuant to this
provision, the former shareholder should forward to the Trust's transfer agent a
copy of an account statement showing the prior investment in these Funds.
The Trust also permits its officers and Trustees and members of their
families, and officers, directors, consultants to and employees of PIA and its
affiliates, Murphy, Orrell, Camborne, the Distributor and selected dealers and
members of their families as well as customers of PIA and its affiliates,
Murphy, Orrell, Camborne or the Distributor to invest in the Gold Fund, the
Government Fund and the Equity Fund at net asset value. (Partners of
partnerships for which any of the foregoing or their affiliates is a general
partner are considered to be customers.) In addition, certain publishers of
investment advisory newsletters and their subscribers and certain investment
advisers on behalf of their discretionary accounts, may invest at net asset
value. See the Statement of Additional Information.
ALL FUNDS PURCHASES
The minimum initial investment in each of the Funds is $1,000 except for
qualified retirement plans, for which the minimum initial investment is $100.
Investors who initiate a pre-authorized check plan may also open an account with
a minimum investment of $100. The minimum subsequent investment for all accounts
is $50. The Distributor reserves the right to reject any order.
Purchase orders may either be placed with selected dealers or submitted to
the Trust's custodian, as follows:
PURCHASE PLACED WITH SELECTED DEALERS
Selected dealers may place orders for shares of any Fund on behalf of clients at
the offering price next determined after receipt of the client's order by
calling the Distributor. If the order is placed by a client with a dealer prior
to 4:00 p.m. Eastern time on any day the New York Stock Exchange is open for
trading, and forwarded to the Distributor prior to 6:00 p.m. Eastern time on
that day, it will be confirmed to the selected dealer at the applicable offering
price determined that day. The selected dealer is responsible for placing
purchase orders promptly with the Distributor and for forwarding payment within
three business days. Purchases at net asset value may be made through brokers,
dealers or other financial institutions who may charge investors a fee, either
at the time of purchase or redemption. The fee, if charged, is retained by the
broker, dealer or other financial institution and not remitted to the Trust or
the Distributor.
PURCHASE SENT TO THE CUSTODIAN
Investors may mail an application form indicating the shares of which Fund are
to be purchased, together with a check payable to "Monterey PIA Short-Term
Government Fund," "Monterey Camborne Government Income Fund," "Monterey OCM Gold
Fund," "Monterey PIA Equity Fund," "Monterey Murphy New World Biotechnology
Fund," "Monterey Murphy New World Technology Fund," "Monterey Murphy New World
Technology Convertibles Fund" or "Monterey PIAGlobal Bond Fund" as appropriate,
directly to the Trust's custodian, at the following address:
Monterey Mutual Funds
P.O. Box 640284
Cincinnati, OH 45264-0284
If the purchase being made is a subsequent investment, the shareholder should
send a stub from a confirmation previously sent by the transfer agent in lieu of
the application form. If no such stub is available, a brief letter giving the
registration of the account, the name of the Fund the shares of which are being
purchased and the account number should accompany the check. In addition, the
shareholder's account number should be written on the check. Checks do not need
to be certified but are accepted subject to face value in United States dollars
and must be drawn on United States banks. American Data Services, Inc. will
charge a $15 fee against a shareholder's account for any payment check returned
to the custodian. The shareholder will also be responsible for any losses
suffered by a Fund as a result.
Shares of the Equity Fund, the Government Fund and the Gold Fund will be
purchased for the account of the investor by the transfer agent as agent for the
investor's selected dealer at the offering price next determined after receipt
by the custodian of the check together with the appropriate form or other
identifying information.
EXCHANGE PRIVILEGE AND OTHER SERVICES
Shares of the Short-Term Government Fund, the Global Bond Fund, the
Biotechnology Fund, the Convertibles Fund and the Technology Fund may be
exchanged for shares of any other Fund (except shares of the Equity Fund, the
Gold Fund and the Government Fund), and shares of the Gold Fund, the Equity Fund
and the Government Fund may be exchanged for shares of any Fund based on their
respective net asset values. See "How to Redeem Shares." The Funds have also
entered into an arrangement with the Portico Money Market Fund and Portico Tax-
Exempt Money Market Fund, under which shareholders may purchase shares of these
Portico Funds and repurchase shares of the Funds at net asset value. The Portico
Funds are not affiliated with the Funds or the Distributor, and their shares are
sold pursuant to a separate prospectus that may be obtained by writing or
calling the Distributor at the address or information numbers set forth on the
cover of this Prospectus. Where shares of the Portico Funds that had been
acquired through a direct purchase or exchange from a Fund, other than the Gold
Fund, the Government Fund or the Equity Fund, are exchanged for shares of the
Gold Fund, the Government Fund, or the Equity Fund, the applicable sales charge
of the Fund will be imposed at the time of the exchange on the amount being
exchanged. The Distributor receives certain payments from the Portico Funds in
connection with exchanges of shares of the Funds for those of the Portico Funds.
Refer to the prospectus of the Portico Funds for information regarding these
payments.
A shareholder who has completed the appropriate section of the application
form may give instructions to make an exchange by calling the transfer agent at
(800) 628-9403 between 9:00 a.m. and 4:00 p.m. Eastern time on days the New York
Stock Exchange is open. Exchanges are subject to the minimum investment
requirements of the fund into which the exchange is being made, and such fund
may reject any exchange for its shares. Furthermore, exchanges will be made only
in those states where they may legally be made. For federal tax purposes, an
exchange is a taxable transaction upon which a gain or loss may be realized.
Shareholders should read the prospectus of the fund into which an exchange is
being made, which may be obtained from selected dealers or the Distributor.
The Trust offers additional services to investors, including plans for the
systematic investment and withdrawal of money as well as prototype retirement
programs. Information about these services is also available in the Statement of
Additional Information or from the Distributor.
NET ASSET VALUE
Each Fund's net asset value per share is determined on each day that the New
York Stock Exchange is open for trading, as of the close of such trading. The
net asset value per share is the value of that Fund's assets, less its
liabilities, divided by the number of shares outstanding of that Fund. The value
of that Fund's portfolio securities will be the market value of such securities.
See the Statement of Additional Information for further information.
DISTRIBUTION PLAN
The Trust's Board of Trustees has adopted a Distribution Plan and Agreement (the
"Plan") under Section 12(b) of the 1940 Act and Rule 12b-1 thereunder applicable
to each Fund (other than the Global Bond Fund). In approving the Plan, the
Trustees determined, in the exercise of their business judgment and in light of
their fiduciary duties, that there is a reasonable likelihood that the Plan will
benefit that Fund and its shareholders.
Pursuant to the Plan, broker-dealers and others, such as banks ("Qualified
Recipients"), that have rendered distribution assistance (whether direct,
administrative or both) may receive fees at rates determined by the Trust's
Trustees. Currently the Gold Fund and the Equity Fund, may pay broker-dealers
fees at a rate not to exceed 0.99% per annum of the average daily net asset
value of the Fund's shares beneficially owned by the broker-dealer or its
clients. Of such fees, 0.25% per annum constitutes a service fee for purposes of
the Rules of Fair Practice of the NASD and the remaining fees constitute an
asset-based sales charge. All payments by the Government Fund, Short-Term
Government Fund, Biotechnology Fund, Technology Fund and Convertibles Fund to
Qualified Recipients are service fees. In addition, the Distributor is
authorized to purchase advertising, sales literature and other promotional
material and to pay its own salespeople. Each Fund will reimburse the
Distributor for these expenditures during a fiscal year of the Fund and for fees
paid to Qualified Recipients during a fiscal year of the Fund, up to a limit of
0.99% on an annual basis of that Fund's daily net assets (0.25% for the
Biotechnology Fund, Technology Fund and the Convertibles Fund, 0.10% for the
Government Fund and 0.05% for the Short-Term Government Fund); no such
reimbursement will be made for expenditures or fees for fiscal years prior to
the fiscal year in question or in contemplation of future fees or expenditures.
In addition, if and to the extent that the fee the Trust pays the investment
adviser pursuant to the Investment Advisory Agreement applicable to that Fund as
well as other payments it makes are considered as indirectly financing any
activity which is primarily intended to result in the sale of that Fund's
shares, such payments are authorized under the Plan. In addition to payments
received pursuant to the Plan, Qualified Recipients which are selected dealers
will receive a portion of the sales charge on any sale by them of Fund shares
(see above), may charge commissions on redemptions and repurchases of Fund
shares (see below) and may receive commissions on Fund portfolio transactions
subject to the provisions of the Investment Advisory Agreements (see the
Statement of Additional Information).
HOW TO REDEEM SHARES
Each Fund will redeem for cash all of its full and fractional shares at the net
asset value per share next determined after receipt of a repurchase order or
redemption request in proper form, as described below.
REPURCHASES
The Trust has appointed the Distributor as its agent to repurchase shares of
each Fund at net asset value. Selected dealers may place orders for the
repurchase of shares of any Fund on behalf of clients by calling the
Distributor. If the order is placed by a client with a dealer prior to 4:00 p.m.
Eastern time on any day the New York Stock Exchange is open for trading, and
forwarded to the Distributor prior to 6:00 p.m. Eastern time on that day, it
will be confirmed to the selected dealer at the net asset value determined that
day. The selected dealer is responsible for placing repurchase orders promptly
with the Distributor and for forwarding stock certificates, stock powers and
other necessary documents within five business days. The transfer agent will
transmit payment for shares repurchased promptly upon receipt of the required
documents. Payment will be sent to the selected dealer or the shareholder, as
specified by the selected dealer's instructions. Selected dealers may charge a
commission for effecting repurchases, which charge may be avoided by an
investor's redeeming shares directly, as described below.
REDEMPTIONS
A shareholder wishing to redeem shares may do so at any time by writing to the
Trust in care of its transfer agent at American Data Services, Inc., 24 West
Carver Street, Huntington, NY 11743 or by delivering instructions to the
transfer agent at such address. The instructions should specify the name of the
Fund, the number of shares to be redeemed and be signed by all registered owners
exactly as the account is registered; it will not be accepted unless it includes
all required documents in proper form, as described below.
PROPER FORM
In addition to written instructions, if any shares being redeemed or repurchased
are represented by stock certificates, the certificates must be surrendered. The
certificates must either be endorsed or accompanied by a stock power signed by
the registered owners, exactly as the certificates are registered. Unless a
shareholder has completed the appropriate section of the application form, the
signatures on the certificates or stock powers, as well as the signatures on any
redemption request concerning shares not represented by certificates, must be
guaranteed by a member of a national securities exchange, commercial bank or
other eligible guarantor institution. A signature guarantee is not the same as
notarization, and an acknowledgment by a notary public is not acceptable as a
substitute for a signature guarantee. Additional documents may be required from
corporations or other organizations, fiduciaries or anyone other than the
shareholder of record. Any questions concerning documents needed should be
directed to (800) 628-9403.
TELEPHONE REDEMPTIONS
Shareholders may redeem shares by telephone. To redeem shares by telephone, a
shareholder must check the appropriate box on the application form as the Trust
does not make this feature available to shareholders automatically. Once this
feature has been requested, shares may be redeemed by phoning the transfer agent
at (800) 628-9403 and giving the account name, account number and either the
number of shares or the dollar amount to be redeemed. Proceeds redeemed by
telephone will be mailed to the shareholder's address as shown on the records of
the Trust.
In order to arrange for telephone redemptions after a Fund account has been
opened, a written request must be sent to the transfer agent. The request must
be signed by each registered holder of the account with the signatures
guaranteed by a commercial bank or trust company in the United States, a member
firm of the New York Stock Exchange or other eligible guarantor institution.
Further documentation may be requested from corporations, executors,
administrators, trustees and guardians.
The Trust reserves the right to refuse a telephone redemption if it believes
it is advisable to do so. Procedures for redeeming shares of any Fund by
telephone may be modified or terminated by the Trust at any time. None of the
Trust, the Custodian or the transfer agent will be liable for following
instructions for telephone redemption transactions which they reasonably believe
to be genuine even if such instructions prove to be unauthorized or fraudulent.
They will employ reasonable procedures to confirm that instructions received by
telephone are genuine, including requiring the shareholder to provide the
shareholder's account number to verify ownership, tape recording all
instructions and providing written confirmation of such instructions, and if
they do not, they may be liable for losses due to unauthorized or fraudulent
instructions.
Shareholders should be aware that during periods of substantial economic or
market change, telephone redemptions may be difficult to implement. If an
investor is unable to contact the transfer agent by telephone, shares may also
be redeemed by delivering the redemption request to the transfer agent by mail
as described above.
SHAREHOLDER CHECKING PRIVILEGES
Shareholders of the Short-Term Government Fund may request on the application
form or by later written request that the Short-Term Government Fund provide
Shareholder Checks drawn on their Short-Term Government Fund accounts to effect
a redemption of shares. Shareholder Checks may be made payable to the order of
any person or entity in the amount of $500 or more. Potential fluctuations in
the net asset value of the Short-Term Government Fund's shares should be
considered in determining the amount of the check. Shareholder Checks should not
be used to close a shareholder's account. Shareholder Checks are free, but Star
Bank, N.A. will impose a fee for stopping payment of a Shareholder Check upon a
shareholder's request or if Star Bank, N.A. cannot honor a Shareholder Check due
to insufficient funds or other valid reason. Shares for which certificates have
been issued may not be redeemed by Shareholder Check. Shares held under any
Keogh Plans, IRAs or other retirement plans are not eligible for this privilege.
This privilege is only available to shareholders of the Short-Term Government
Fund and may be modified or terminated at any time by the Short-Term Government
Fund or Star Bank, N.A. upon notice to shareholders.
PAYMENTS
Payment for shares tendered will be made within seven days after receipt by the
transfer agent of instructions, certificates, if any, and other documents, all
in proper form. However, payment may be delayed under unusual circumstances, as
specified in the 1940 Act or as determined by the Securities and Exchange
Commission. Payment may also be delayed for any shares purchased by check for a
reasonable time (not to exceed 15 days from purchase date) necessary to
determine that the purchase check will be honored.
The Short-Term Government Fund will arrange for the proceeds of redemptions
effected by any means to be wired as Federal Funds to the bank account
designated in the shareholder's Account Information Form. Redemption proceeds
will normally be wired on the next Business Day in Federal Funds (for a total
one-day delay) but may be paid up to seven (7) days after receipt of a properly
executed redemption request. Wiring of redemption proceeds may be delayed one
additional Business Day if the Federal Reserve Bank is closed on the day
redemption proceeds would ordinarily be wired. In order to change the bank
designated on the Account Information Form to receive redemption proceeds, a
written request must be received by the Transfer Agent. This request must be
signature guaranteed as set forth above. Further documentation may be required
for executors, trustees or corporations. Once wire transfer instructions have
been given, none of the Short-Term Government Fund, the Custodian or the
Transfer Agent shall assume any further responsibility for the performance of
intermediaries of the shareholder's bank in the transfer process. If a problem
with such performance arises, the shareholder should deal directly with such
intermediaries or bank.
REDEMPTION IN KIND
If the Board of Trustees determines that it would be detrimental to the best
interests of the remaining shareholders of any Fund to make payment wholly or
partly in cash, the Trust may pay the redemption price in whole or in part by a
distribution in kind of securities from the portfolio of that Fund, in lieu of
cash, in conformity with applicable rules of the Securities and Exchange
Commission. The Trust, however, has elected to be governed by Rule 18f-1 under
the 1940 Act pursuant to which the Trust is obligated to redeem shares of any
Fund solely in cash up to the lesser of $250,000 or one percent of the net
assets of that Fund during any 90 day period for any one shareholder. Should
redemptions by any shareholder exceed such limitation, the Trust will have the
option of redeeming the excess in cash or in kind. If shares are redeemed in
kind, the distribution would be made in readily marketable securities upon
satisfaction of Rule 18f-1 under the 1940 Act and the redeeming shareholder
would incur brokerage costs in converting the assets into cash.
REDEMPTION OF SMALL ACCOUNTS
The Board of Trustees may, in order to reduce the expenses of a Fund, redeem all
of the shares of any shareholder (other than a qualified retirement plan) whose
account has declined to a net asset value of less than $500, as a result of a
transfer or redemption, at the net asset value determined as of the close of
business on the business day preceding the sending of notice of such redemption.
The Trust would give shareholders whose shares were being redeemed 60 days'
prior written notice in which to purchase sufficient shares to avoid such
redemption.
DIVIDENDS AND TAX STATUS
Each Fund is treated as a separate entity for purposes of determining federal
tax treatment. The Trust intends for each Fund to qualify as a "regulated
investment company'' under Subchapter M of the Code and thus not be subject to
federal income taxes on amounts which it distributes to its shareholders. Each
so qualified during the last fiscal year.
All dividends from net investment income, together with distributions of
short-term capital gains (collectively, "income dividends"), will be taxable as
ordinary income to the shareholders, whether or not paid in additional shares.
The Convertibles Fund, the Gold Fund, the Equity Fund, the Biotechnology Fund
and the Technology Fund expect to pay income dividends annually, and the Global
Bond Fund, the Short-Term Government Fund and the Government Fund expect to pay
income dividends monthly.
The daily net investment income of the Short-Term Government Fund is declared
as a dividend each day to shareholders of record. Shares purchased will begin
earning dividends the first business day following the day the purchase becomes
effective. Redeemed shares will participate in the dividend declared on the day
of redemption. If all shares in an account are redeemed, dividends credited to
the account since the beginning of the dividend period through the date of
redemption will be paid with the redemption proceeds. If less than all such
shares are redeemed, all dividends accrued but unpaid on the redeemed shares
will be distributed on the next payment date. For the purpose of calculating
dividends, net investment income consists of income accrued on portfolio assets,
less accrued expenses. Income earned on weekends, holidays and other days on
which the net asset value is not calculated will be declared as a dividend in
advance on the preceding business day.
Each Fund expects to pay an annual distribution of long-term capital gains
realized, if any. Such capital gains dividends will be taxable to shareholders
as net long-term capital gains, regardless of the length of time a shareholder
has owned his shares. Under current law, long-term capital gains, short-term
capital gains and ordinary income recognized by corporate shareholders are
subject to the same maximum federal income tax rate. However, for noncorporate
shareholders, long-term capital gains are subject to a maximum federal income
tax rate of 28%, while ordinary income recognized by such shareholders is
subject to a maximum federal income tax rate of 39.6%. In addition, both
corporate and noncorporate shareholders are subject to limitations on the extent
to which capital losses may be deducted from ordinary income. For the
convenience of investors, all dividends and distributions are paid in full and
fractional shares of the Fund making the payment based on the net asset value
per share at the close of business on the record date, unless the shareholder
has previously notified the transfer agent that dividends are to be paid in
cash. Dividends and distributions received in January of any calendar year will
be treated for tax purposes as if received in the prior calendar year, if
declared in October, November or December to shareholders of record in such
month. The Trust will notify each shareholder after the close of its fiscal year
both of the dollar amount and the tax status of that year's dividends and
distributions. Dividends and capital gains distributions may also be subject to
state and local or foreign taxes. A state income (and possibly local income
and/or intangible property) tax exemption is generally available to the extent,
if any, a Fund's distributions are derived from interest on (or, in the case of
intangible taxes, the value of its assets is attributable to) certain U.S.
Government obligations, provided in some states that certain thresholds for
holdings of such obligations and/or reporting requirements are satisfied.
The Code provides for a 70% dividends-received deduction (the "deduction") by
corporations owning less than 20% of the value and voting power in the
distributing corporation. Since all or substantially all of the income of the
Government Fund, the Global Bond Fund and the Short-Term Government Fund is
derived from interest payments to it, none of the dividends of these Funds will
qualify for the deduction. The basic test under the Code for determining whether
and the extent to which the dividends paid by the other Funds are eligible for
the deduction is whether the aggregate dividends received by that Fund from
domestic corporations comprise 100% of the net investment company income taxable
distributions made by the Fund. If this percentage test is not met, there is a
proportionate reduction of the eligibility of those payments. Capital gains
distributions are not eligible for the deduction.
Gains realized from the sale of securities and options on securities will be
long- or short-term, depending on the length of time owned by the Fund.
Any gain or loss realized upon the sale or redemption of Fund shares will
generally be treated by a shareholder as long-term capital gain or loss if the
shares have been held more than one year and otherwise as short-term capital
gain or loss. Any such loss, however, will be treated as long-term capital loss
to the extent of any capital gains distributions received by the shareholder on
shares held for six months or less. In determining the amount of any capital
gain or loss for federal income tax purposes, a shareholder's basis in Fund
shares which are exchanged within 90 days of purchase pursuant to the exchange
privilege or reinvestment option will not include the sales charge paid with
respect thereto and such sales charge will be added to the basis of the shares
purchased pursuant to the exchange privilege or reinvestment option.
Under the Interest and Dividend Tax Compliance Act of 1983 the Trust may be
required to impose backup withholding at a rate of 31% from income dividends and
capital gains distributions and upon payment of redemption proceeds if
provisions of that law relating to the furnishing and certification of taxpayer
identification numbers and reporting of dividends are not complied with by a
shareholder.
Income received by the Gold Fund, the Equity Fund, the Global Bond Fund and
the Technology Fund from foreign sources may be subject to withholding and other
taxes imposed by such countries. It is impossible to determine in advance the
effective rate of foreign tax to which these Funds may be subject. If more than
50% of the total assets of these Funds are invested in securities of foreign
corporations at the end of any fiscal year in which they qualify as a regulated
investment company, such Fund may elect the application of Section 853 of the
Code, to permit its shareholders to take a credit or a deduction for foreign
taxes paid by the Fund. Tax-exempt shareholders generally will not benefit from
this election. See the Statement of Additional Information for further details.
PERFORMANCE INFORMATION
From time to time any of the Funds may quote its average annual total return
("standardized return") in advertisements or promotional materials.
Advertisements and promotional materials reflecting standardized return
("performance advertisements") will show percentage rates reflecting the average
annual change in the value of an assumed initial investment in that Fund of
$1,000 at the end of one, five and ten year periods, reduced by the maximum
applicable sales charge. If such periods have not yet elapsed, data will be
given as of the end of a shorter period corresponding to the duration of the
Fund. Standardized return assumes the reinvestment of all dividends and capital
gain distributions, but does not take into account any federal or state income
taxes that may be payable upon redemption.
The Government Fund, the Global Bond Fund and the Short-Term Government Fund
also may refer in advertising and promotional materials to their yield. The
yield of each such Fund shows the rate of income that it earns on its
investments, expressed as a percentage of the net asset value of such Fund's
shares. Each of such Funds calculates yield by determining the interest income
it earned from its portfolio investments for a specified thirty-day period (net
of expenses), dividing such income by the average number of Fund shares
outstanding, and expressing the result as an annualized percentage based on the
net asset value at the end of that thirty day period. Yield accounting methods
differ from the methods used for other accounting purposes; accordingly, the
yields of such Funds may not equal the dividend income actually paid to
investors or the income reported in the financial statements of such Funds.
In addition to standardized return, performance advertisements also may
include other total return performance data ("non-standardized return"). Non-
standardized return may be quoted for the same or different periods as those for
which standardized return is quoted and may consist of aggregate or average
annual percentage rates of return, actual year by year rates or any combination
thereof.
All data included in performance advertisements will reflect past performance
and will not necessarily be indicative of future results. The investment return
and principal value of an investment in a Fund will fluctuate, and an investor's
proceeds upon redeeming Fund shares may be more or less than the original cost
of the shares.
GENERAL INFORMATION
The Trust was organized on January 6, 1984 as a Massachusetts business trust.
Its Declaration of Trust contains an express disclaimer of shareholder liability
for its acts or obligations and requires that notice of such disclaimer be given
in each agreement, obligation or instrument entered into or executed by the
Trust or its Trustees. The Declaration of Trust provides for indemnification and
reimbursement of expenses out of the Trust's property for any shareholder held
personally liable for its obligations. The Declaration of Trust also provides
that the Trust shall, upon request, assume the defense of any claim made against
any shareholder for any act or obligation of the Trust and satisfy any judgment
thereon. Thus, while Massachusetts law permits a shareholder of a trust such as
this to be held personally liable as a partner under certain circumstances, the
risk of a shareholder incurring financial loss on account of shareholder
liability is highly unlikely and is limited to the relatively remote
circumstances in which the Trust would be unable to meet its obligations, which
obligations are limited by the 1940 Act.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
Shareholders are entitled to one vote for each full share held (and
fractional votes for fractional shares) and may vote in the election of Trustees
and on other matters submitted to meetings of shareholders. It is not
contemplated that regular annual meetings of shareholders will be held. Rule
18f-2 under the 1940 Act provides that matters submitted to shareholders be
approved by a majority of the outstanding securities of each Fund, unless it is
clear that the interest of each Fund in the matter are identical or the matter
does not affect a Fund. However, the rule exempts the ratification of the
selection of accountants and the election of Trustees from the separate voting
requirements. By virtue of its stock ownership and that of its clients, PIA is
deemed to "control", as that term is defined in the 1940 Act, the Trust and the
Short-Term Government Fund.
Income, direct liabilities and direct operating expenses of each Fund will be
allocated directly to each Fund, and general liabilities and expenses of the
Trust will be allocated among the Funds in proportion to the total net assets of
each Fund, on a pro rata basis among the Funds or as otherwise determined by the
Board of Trustees.
The By-Laws provide that the Trust's shareholders have the right, upon the
declaration in writing or vote of more than two-thirds of its outstanding
shares, to remove a Trustee. The Trustees will call a meeting of shareholders to
vote on the removal of a Trustee upon the written request of the record holders
of ten percent of the Trust's shares. In addition, ten shareholders holding the
lesser of $25,000 worth or one percent of the Trust's shares may advise the
Trustees in writing that they wish to communicate with other shareholders for
the purpose of requesting a meeting to remove a Trustee. The Trustees will then,
if requested by the applicants, mail at the applicants' expense the applicants'
communication to all other shareholders. No amendment may be made to the
Declaration of Trust without the affirmative vote of the holders of more than
50% of its outstanding shares. The holders of shares have no preemptive or
conversion rights. Shares when issued are fully paid and non-assessable, except
as set forth above. The Trust may be terminated upon the sale of its assets to
another issuer, if such sale is approved by the vote of the holders of more than
50% of the outstanding shares of each Fund, or upon liquidation and distribution
of its assets, if so approved. If not so terminated, the Trust will continue
indefinitely.
McGladrey & Pullen, LLP serves as the independent accountants of the Trust.
Star Bank, N.A., Cincinnati, OH, is the custodian of the Trust's assets. The
Administrator acts as accounting and shareholder servicing agent. Shareholder
inquiries should be directed to the Administrator.
APPENDIX
STANDARD & POOR'S CORPORATION RATINGS FOR CORPORATE BONDS
AAA Debt rated AAA has the highest rating assigned by Standard & Poor's
Corporation. Capacity to pay interest and repay principal is extremely
strong.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher
rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher rated categories.
BB, B, Debt rated "BB", "B", "CCC", "CC" and "C" is regarded as having
CCC, predominantly speculative characteristics with respect to capacity to pay
CC, C interest and repay principal. "BB" indicates the least degree of
speculation and "C" the highest. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major exposure to adverse conditions.
BB Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which
could lead to inadequate capacity to meet timely interest and principal
payments. The "BB" rating category is also used for debt subordinated
to senior debt that is assigned an actual or implied "BBB-" rating.
B Debt rated "B" has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category
is also used for debt subordinated to senior debt that is assigned an
actual or implied "BB" or "BB-" rating.
CCC Debt rated "CCC" has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial or economic conditions, it is
not likely to have the capacity to pay interest and repay principal. The
"CCC" rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied "B" or "B-" rating.
CC The rating "CC" typically is applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC-" rating.
C The rating "C" typically is applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating. The "C" rating
may be used to cover a situation where bankruptcy petition has been
filed, but debt service payments are continued.
STANDARD & POOR'S CORPORATION CHARACTERISTICS OF
SOVEREIGN DEBT OF FOREIGN COUNTRIES
AAA Stable, predictable governments with demonstrated track record of
responding flexibly to changing economic and political circumstances.
Prosperous and resilient economies, high per capita incomes.
Low fiscal deficits and government debt, low inflation.
Low external debt.
AA Stable, predictable governments with demonstrated track record of
responding to changing economic and political circumstances.
Tightly integrated into global trade and financial system.
Differ from AAAs only to a small degree because:
- Economies are smaller, less prosperous and generally more vulnerable to
adverse external influences (e.g., protection and terms of trade
shocks).
- More variable fiscal deficits, government debt and inflation.
- Moderate to high external debt.
A Politics evolving toward more open, predictable forms of governance in
environment of rapid economic and social change.
Established trend of integration into global trade and financial system.
Economies are smaller, less prosperous and generally more vulnerable to
adverse external influences (e.g., protection and terms of trade
shocks), but
Usually rapid growth in output and per capita incomes.
Manageable through variable fiscal deficits, government debt and
inflation.
Usually low but variable debt.
BBB Political factors a source of significant uncertainty, either because
system is in transition or due to external threats, or both, often in
environment of rapid economic and social change.
Integration into global trade and financial system growing but untested.
Economies less prosperous and often more vulnerable to adverse external
influences.
Variable to high fiscal deficits, government debt and inflation.
High and variable external debt.
BB Political factors a source of major uncertainty, either because system is
in transition or due to external threats, or both, often in environment
of rapid economic and social change.
Integration into global trade and financial system growing but untested.
Low to moderate income developing economies, but variable performance and
quite vulnerable to adverse external influences.
Variable to high fiscal deficits, government debt and inflation.
Very high and variable debt, often graduates of Brady Plan but track
record not well established.
MOODY'S INVESTORS SERVICE, INC. BONDS
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt-edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risk appear
somewhat larger than the Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in
the future.
Baa Bonds which are rated Baa are considered as medium grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
Ba Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
DUFF & PHELPS RATINGS FOR CORPORATE BONDS AND FOR SOVEREIGN,
SUBNATIONAL AND SOVEREIGN RELATED ISSUERS
AAA Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions.
A Protection factors are average but adequate. However, risk factors are
more variable and greater in periods of economic stress.
BBB Below average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic
cycles.
BB Below investment grade but deemed likely to meet obligations when due.
Present or prospective financial protection factors fluctuate according
to industry conditions or company fortunes. Overall quality may move up
or down frequently within this category.
IBAC LONG-TERM RATINGS FOR CORPORATE BONDS AND FOR
SOVEREIGN, SUBNATIONAL AND SOVEREIGN RELATED ISSUERS
AAA Obligations for which there is the lowest expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial,
such that adverse changes in business, economic or financial conditions
are unlikely to increase investment risk substantially.
AA Obligations for which there is a very low expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial.
Adverse changes in business, economic or financial conditions may
increase investment risk, albeit not very significantly.
A Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions
may lead to increased investment risk.
BBB Obligations for which there is currently a low expectation of investment
risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than
for obligations in other categories.
BB Obligations for which there is a possibility of investment risk
developing. Capacity for timely repayment of principal and interest
exists, but is susceptible over time to adverse changes in business,
economic or financial conditions.
In the case of sovereign, subnational and sovereign related issuers, the Funds
use the rating service's foreign currency or domestic (local) currency rating
depending upon how a security in a Fund's portfolio is denominated. In the case
where a Fund holds a security denominated in a domestic (local) currency and the
rating service does not provide a domestic (local) currency rating for the
issuer, a Fund will use the foreign currency rating for the issuer; in the case
where a Fund holds a security denominated in a foreign currency and the rating
service does not provide a foreign currency rating for the issuer, a Fund will
treat the security as being unrated.
MONTEREY
MUTUAL FUND
INVESTMENT ADVISERS
Pacific Income Advisers, Inc.
1299 Ocean Avenue, #210
Santa Monica, CA 90401
Murphy Investment Management, Inc.
2830 North Cabrillo Highway
Half Moon Bay, CA 94019
Orrell Capital Management,
a division of
Orrell and Company, Inc.
120 Montgomery Street, #1230
San Francisco, CA 94104
Camborne Advisors, Inc.
10670 N. Central Expressway #405
Dallas, TX 75231
DISTRIBUTOR
Syndicated Capital, Inc.
1299 Ocean Avenue, #210
Santa Monica, CA 90401
1-800-251-1970
COUNSEL
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, WI 53202
INDEPENDENT AUDITORS
McGladrey & Pullen, LLP
555 5th Avenue
New York, NY 10017
CUSTODIAN
Star Bank, N.A.
425 Walnut Street
Cincinnati, OH 45201
ADMINISTRATOR, TRANSFER AGENT
AND DIVIDEND DISBURSING AGENT
American Data Services, Inc.
24 West Carver Street
Huntington, NY 11743
TABLE OF CONTENTS
Fee Table.......................... 2
Summary............................ 2
Financial Highlights............... 5
Investment Objectives and Policies
of the Monterey Mutual Funds..... 9
Investment Practices and Risks.....20
Principal Investment Restrictions..25
Management ........................26
How to Purchase Shares.............29
How to Redeem Shares...............32
Dividends and Tax Status...........34
Performance Information............36
General Information................36
Appendix...........................38
